Congratulations! You navigated the difficult, murky process of getting a Paycheck Protection Program (PPP) loan for your business. So now that you have the loan it’s time to put the funds to use and ask yourself:
- What do you need to do to maximize its use?
- What do you need to prioritize to get maximum loan forgiveness?
- How can you use the money to extend the runway for your company during these uncertain times?
With those key questions in mind here are the top five things you need to do to get the most out of your PPP loan.
1. Use money from the loan on forgivable expenses
Make sure you are using your PPP money on the right expenses in order to maximize forgiveness. You must track what you spend this money on in order to be able to apply for forgiveness. Depending on the amount, you may want to open a separate account, and only use the money in that account to pay for:
- Payroll for 8 weeks after receiving the loan, including — salaries, wages, vacation, parental, family, medical, or sick leave, and health benefits
- Rent or mortgage interest for 8 weeks, as long as the mortgage was signed before February 15, 2020
- Approved Utilities
Remember, at least 60% of the loan proceeds must be spent on payroll costs in order to qualify for full loan forgiveness. You’ll also want to reach out to your lender to submit the correct forgiveness application, along with the required documentation to support it. Keep in mind, that for the new round of PPP funding, including Second Draw Loans, that you are only required to fill out a simplified forgiveness form if you received a loan totaling $50,000 or less.
2. Document everything
Keep records on every penny you spend from the PPP loan. While the SBA has attempted to standardize the required documents needed to receive forgiveness, it has some lenders may require different forms and financial proof.
At a minimum, have documentation to show the number of employees you have and how you have not laid anyone off since February 15th. If you did lay or furlough employees after receiving the loan, you have until December 31st to hire them back, in order to get full forgiveness. Make sure you understand every expense that you can allocate to the PPP and again, that at least 60% of the PPP loan is used for payroll.
3. Develop updated forecasts at least through the end of the year
Forecast the impact COVID-19 has had on your business through the end of the year. Part of how you make sure you get forgiveness for the PPP loan is by being able to certify that your business needed the money due to the economic pressure from the COVID-19 crisis.
Create a forecast scenario that gives you a projected Profit and Loss Statement and a projected Cash Flow Statement. By putting together these financial forecasts you will understand:
- How the PPP loan helps your cash flow
- How to plan to spend the PPP money correctly
- If your business needs more than just PPP to survive this crisis.
4. Create additional “What-if” forecast scenarios
What happens after 8 weeks? When do you think your sales will start to recover? Can you pivot and change what you sell or the way you sell to make your business more viable during this crisis?
This is your chance to play with your numbers and see what is possible. Using “what if” scenarios will also help you understand the different options you have and the reality of what it will take to keep your business alive. The more you plan, adjust, and compare against your actuals, the less likely that you’ll be surprised or fearful of uncertainty.
5. Line up additional funding
Seek out additional aid or loans, as needed and appropriate. As you work with your what-if scenarios you may quickly realize that the PPP loan will only take you so far. How is your cash looking 3, 6, 9 months out? Can you sustain your business without more cuts to personnel or other expenses? Can you call vendors and renegotiate payment terms and get some discounts?
No one wants to lose customers right now so your vendors may be willing to play ball. Once you figure out all the expenses that can be cut, and how it affects your profits and cash, you can understand with other loans and aid to seek out. You might want to explore the availability of local aide (city, county, and states are putting together programs) for small businesses, as well as whether the Emergency Injury Disaster Loans are right for your business.
Actively managing your PPP loan
Overall the best thing you can do is to actively manage, forecast, and track the use of your PPP loan. It ensures that you are using the funds effectively and always have records of how it was used to make applying for forgiveness that much easier. If the idea of manually maintaining your loan alongside keeping your business running sounds like a frustrating exercise, you may want to consider using a tool like LivePlan.
Not only does LivePlan help keep all of your business planning documents in order, but it can also be used to help you manage your loan and calculate how much may be forgiven. Easily develop multiple forecast scenarios around your loan, actively track its use, and produce the necessary financial documents for reimbursement. You can even sync it to your accounting solution, such as QuickBooks or Xero, to easily track the forecast versus actual results there.
Additional Planning Resources
If a tool like LivePlan is currently out of the question for your business, we have plenty of free resources to help you out.
Income Statement (P&L) Download: Another free Excel template that will help you create an expense budget and measure your profitability.
Cash Flow Template Download: Forecasting your cash flow is important when your business situation changes. You can use this to plan for the use of your PPP loan as well as what the rest of 20213 looks like for your business.