5 Tips for Small Business Owners Applying for Emergency Loans

Getting your hands on an emergency small business loan during the coronavirus crisis can feel harder every day. Many business owners have been frustrated by changing guidance and in some cases broken systems. 

On Friday, a panel of experts spoke at the National Small Business Town Hall, a live webinar hosted by Inc. and the U.S. Chamber of Commerce.

Here are five tips for business owners covered during the discussion.

1. Accepting a reduced PPP loan amount is risky

Paycheck Protection Program loans are designed to cover 2.5 months of payroll costs, but some business owners are being offered smaller amounts by their banks, such as enough money to cover just 1.5 months. While turning away a loan in the hopes of getting a larger sum elsewhere may feel counterintuitive when your business is in dire need, you're only allowed to receive one PPP loan, so taking a smaller amount is risky. "If I knew I needed the two and a half months, I would find a lender [offering] the two-and-a-half months," advised Neil Bradley, executive vice president and chief policy officer at the U.S. Chamber of Commerce.

2. Don't bet on cash from the EIDL program

A flood of applications for the Small Business Administration's Economic Injury Disaster Loans caused the program's website to crash temporarily. The program is completely oversubscribed, Bradley said. On Thursday, April 9, the SBA began telling applicants that while the maximum loan amount is $2 million, businesses may only be able to get a loan for $15,000 until Congress replenishes the fund, according to Bradley. "We're racing at the U.S. Chamber to get Congress to put more money into that program," he said. "This program is really important if you have non-payroll operating costs."

3. Avoid PPP application errors

Many small businesses have been hamstrung by confusing guidance regarding PPP applications. One common mistake is listing an incorrect amount for payroll costs, according to Sarah Jennings, a director at accounting firm Maner Costerisan. The PPP application requires applicants to list their gross payroll. "That includes commissions and cash tips," Jennings said. "What it doesn't include is employer portions of the employer FICA and federal taxes." Other common errors include listing payments to independent contractors, which shouldn't be included, and not capping wages at $100,000 for individuals who make more than $100,000 per year. 

4. Companies with equity investors remain in limbo

Because businesses backed by private equity firms or other equity investors may be classified as part of a larger organization, many companies as of now do not qualify for PPP loans. If an investment firm owns a majority stake in your company, and your business is part of a venture capital firm's portfolio, that typically disqualifies you because you then exceed the 500-employee limit. While that could change with revised rules, as of now many companies remain in limbo. "Irrespective of your ownership structure, these independent companies do need some help in being able to survive this downturn," Bradley said.

5. PPP loans can be combined with the Main Street Lending Program 

The Federal Reserve's Thursday announcement of the Main Street Lending Program revealed that businesses with up to 10,000 employees will be eligible for relief loans of $1 million and more. The program won't open for another week, but businesses can receive both PPP loans and loans from the Main Street Lending Program. "You should watch this if you're not eligible for PPP, or if you're looking for additional assistance beyond the PPP," Bradley said.