When it comes to government funding programs to protect your small business, the most popular has been the Paycheck Protection Program. There are other options that received less attention, but they could be the solution to getting your business through the ups and downs of this year. This article will spell out the challenges of receiving these business funding programs.
1. Paycheck Protection Program
Unless you’ve been sleeping under a rock (hey, we won’t judge you) then you have heard about the Paycheck Protection Program. Maybe you even got a PPP loan yourself. This government program was by far the most talked about program, and this is because of the enticing offer of FREE MONEY. Now, in reality your business has to meet a certain number of qualifications in order to receive PPP loan forgiveness. There are many small businesses that took advantage of this program, used the money for their business, and now need another source of business funding. Some business owners are hoping for new legislation providing automatic loan forgiveness without the need for application. So far, these calls have gone unanswered. So, if you took out a PPP loan, be sure to understand the loan forgiveness application process, otherwise you may be unexpectedly on the hook for repaying that loan amount.
2. Economic Injury Disaster Loan
The Economic Injury Disaster Loan (EIDL) program is aimed at helping small businesses and non-profits weather temporary loss of revenue. These are SBA backed loans that have lower fixed rates and more favorable repayment terms than other small business loans. There are still approval requirements like credit score and collateral that determine your loan amount if you can get a loan. This program has been overshadowed by the PPP loans, and it can help your business stay strong for the current time. These loans will need to be repaid though, and the interest rates at 3.75% are pricier than the 1% interest of PPP loans. The loan size will almost certainly be more than the PPP loans, but it will be harder to obtain.
3. Main Street Lending Program
The Federal Reserve typically cuts interest rates in order to stimulate more financial lending in order to help businesses survive rough economic times. This recession has required a more involved response from the Fed, and thus the Main Street Lending Program was created. This program was estimated to assist in funding up to $600 billion in new loans. The loans were aimed at small to medium sized businesses that were healthy before the pandemic and recession. Additionally, you can still be eligible for these funds even if you took a PPP loan. These loans require repayment, and the minimum loans amount is $250,000. So, this lending program is aimed at higher revenue businesses than the typical mom and pop main street businesses. The largest drawback to these loans is that they aren’t being approved. Despite the program aiming to fund businesses that were strong before the pandemic, the drop in business strength due to the pandemic is disqualifying a lot of applicants. The Fed takes 95% of responsibility for businesses that are unable to repay the loans. Even with only 5% liability, banks are not lending to small businesses. Only $2.5 billion out of the $600 billion has been loaned from the Main Street program. That is less than 1% of the loan amounts the program intended to underwrite. Unfortunately, this loan program appears to be overwhelmingly out of reach to the businesses that need it.
So there are a lot of government funding programs that are aimed at helping small businesses weather this storm. The unfortunate reality is that there is no perfect solution in these programs, and there is no action by the Senate to pass more stimulus programs. These loans may be eligible for some businesses but with many small business closures already and more to come, they won’t be enough. There is no guarantee of financing for the EIDL or Main Street Lending Program, and if you have already taken out a PPP loan then you cannot receive another PPP loan. Without adding more debt and repayment obligations to your business, how can you find reliable financing for your business during COVID-19? Invoice factoring is a debt-free source of business funding that improves your cash flow. Approval decisions are not determined by your credit score or time in business. Instead, new start or bad credit business owners can receive fast, flexible funding that grows with your funding needs.
Looking to protect your business without adding debt to your balance sheet? Read more about how invoice factoring services can help.