The Paycheck Protection Program (PPP) has been a crucial lifeline for countless small businesses, but it’s likely not enough to ensure your funding needs are met in the long run. On this page, we’ll explore how PPP loans work, their benefits and shortcomings, and go over some PPP loan alternatives that can help.
PPP Loans Help with Immediate Payroll Needs
As part of H.R.748, also known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the PPP sought to put $350 billion in the hands of business owners during the COVID crisis.
The PPP loan program offers three key incentives.
- Businesses receive government financial assistance to keep their doors open. With cash in hand, businesses can cover expenses despite COVID closures and diminished revenue.
- Businesses are incentivized to keep employees on their payroll. To keep unemployment numbers as low as possible, the government included stipulations about maintaining pre-COVID staffing levels.
- Businesses can apply to have their PPP loans forgiven. Because many PPP loans may not need to be paid back, they’re more like grants than traditional loans.
PPP and EIDL loans helped small businesses during the early stages of the pandemic.
Before the pandemic, an average small business could only stay afloat for 27 days without revenue, according to Business News Daily. Certain industries have a much shorter span. Those in the personal service industries usually only have about 21 days of cash, while retailers have 19 and restaurants have 16.
The cash PPP loans delivered saved many businesses from permanently shutting their doors as shelter-in-place orders began and closures were mandated.
As part of the coronavirus relief efforts, Small Business Administration (SBA) provided SBA loans with lower interest rates, such as economic injury disaster loans (EIDL), to small businesses that met the eligibility requirements.
Small businesses face different difficulties today.
These days, it’s not about making ends meet when revenue is suspended. Businesses must cope with major paradigm shifts that require increased spending in new areas to continue operations. Examples include:
All too often, these are not things that can be solved with a single small business loan, e.g. microloans. Small businesses have to rebuild their processes from the ground up to ensure they’re meeting customer needs, complying with new guidelines, and maintaining enough cash flow to cover all these new expenses.
Understanding the SBA Loans and Their Role in Business Financing
The SBA offers various loans that can be pivotal for small business owners, especially those who missed out on the PPP program. SBA loans are available to small business owners looking for alternative financing options to grow their businesses. These loans are typically low-interest and can be more flexible compared to traditional bank loans.
SBA 7(a) Loans
One of the most popular SBA loans is the 7(a) loan, which provides funding to cover various business expenses, from working capital to equipment purchases. Loan amounts can reach up to $5 million, depending on your business needs and eligibility.
SBA Microloans
For smaller funding needs, SBA microloans offer up to $50,000, perfect for new businesses or those needing a boost. These loans are often used for inventory, supplies, and working capital, helping small business owners who can’t get a PPP loan.
SBA Express Loans
The SBA Express loan is a great option for businesses needing quick access to funds. With a turnaround time of 36 hours, these loans are ideal for covering immediate expenses and providing a bridge until other financing is secured.
These SBA loans provide a range of funding options that can be tailored to fit the specific needs of your business, ensuring you have the capital necessary to succeed.
Debt-Free Financing Using Your Accounts Receivables
You may qualify for a form of debt-free financing that allows you to turn your accounts receivables into immediate cash if your small business needs more than a PPP loan.
Invoice Factoring Turns Unpaid B2B Invoices into Instant Cash
If your business generates B2B invoices, factoring can provide you with the working capital you need to cover payroll, purchase supplies or equipment, and more. Rather than taking out a loan that needs to be paid back, you simply ask a factoring company to purchase your unpaid invoices. The factoring company gives you advance payment on your accounts receivables, then waits for your customers to pay their invoices and collects from them.
Invoice factoring comes with a wealth of benefits.
Factoring may be a short-term cash flow solution, but it helps companies grow stronger in many ways.
- It’s a debt-free solution. Businesses don’t take on any debt with factoring, so they are always working toward the future, not paying off what they borrowed yesterday.
- Cash flow is accelerated. You’re no longer stuck waiting 15, 30, or even 45 days or more for payment. You can get paid the day you send your invoice.
- Qualifying is easy. Since factoring is not a loan, you can qualify even if you might not be eligible for other forms of lending. This is incredibly helpful if lenders are looking at your debt-to-income ratio and see a hefty PPP loan in the mix.
- Working capital is freed up. You can spend your cash however you like. While many businesses use it to cover payroll or rent, you have the power to apply your factoring funds wherever they’ll do the most good for your business.
- Your back-office processes are streamlined. Your factoring company will handle the collections process for you, so you can apply time and resources to business growth and maintain focus.
With invoice factoring, you can move beyond PPP loans and build financial credibility.
PPP loans are a gap-filler that helps fill an immediate need, but factoring fuels business growth. Small businesses that leverage factoring can use it to secure volume discounts on supplies and offer customer-friendly payment terms that build relationships. That means your business grows stronger over time and your financial credibility increases.
Leveraging Business Lines of Credit for Flexibility and Growth
A business line of credit is an essential tool for managing cash flow and ensuring your business can cover immediate expenses without disruption. Unlike a term loan, a line of credit offers revolving funds that you can draw on as needed.
Flexibility in Financing
A business line of credit provides flexibility, allowing you to access funds up to a predetermined limit. This can be particularly useful for covering seasonal fluctuations, unexpected expenses, or taking advantage of new business opportunities.
Building Business Credit
Using a business line of credit responsibly can help build your business credit score. This is crucial for future borrowing needs, as a higher credit score can lead to better loan terms and interest rates.
Covering Payroll Costs and Operational Expenses
A line of credit can be an excellent solution for covering payroll costs, purchasing inventory, or managing other operational expenses. This ensures your business runs smoothly, even during financial downturns.
Quick Access to Funds
Lines of credit offer quick access to cash compared to traditional loans, which can be critical in time-sensitive situations. This makes them an ideal financing option for businesses needing immediate financial support.
Leveraging a business line of credit can provide your business with the financial agility needed to grow and thrive in a competitive market.
Financing Options to Cover Payroll and Other Essential Business Expenses
Maintaining sufficient cash flow to cover payroll and other essential expenses is critical for any business. Various financing options can help ensure you meet these obligations even during financial challenges.
Short-Term Business Loans
Short-term business loans can provide the necessary funds to cover payroll and other immediate expenses. These loans are typically repaid within a year, making them suitable for temporary financial gaps.
Invoice Factoring
Invoice factoring allows businesses to convert unpaid invoices into immediate cash. This is particularly useful for covering payroll costs, as it provides a quick influx of funds without taking on new debt.
Merchant Cash Advances
A merchant cash advance offers a lump sum of cash in exchange for a percentage of future sales. This can be a good option for businesses with steady credit card sales needing immediate funds.
SBA Express Loans
The SBA Express loan program offers quick access to funds, making it an excellent choice for covering urgent payroll and operational expenses. With faster approval times, businesses can get the money they need without long delays.
Exploring these financing options can help ensure your business remains operational and meets its payroll obligations, keeping your employees satisfied and your business running smoothly.
How to Use Term Loans to Fuel Business Growth
Term loans are a robust financing option that can provide the necessary capital to fuel business growth. They offer a lump sum of money that is repaid over a set period, typically with fixed interest rates.
Investing in Expansion Projects
Term loans can be used to fund expansion projects such as opening new locations, renovating existing facilities, or purchasing new equipment. This type of financing is ideal for long-term investments that require substantial upfront costs.
Enhancing Business Operations
Use a term loan to streamline and enhance your business operations. This could include upgrading technology, improving supply chain processes, or hiring additional staff to increase productivity.
Marketing and Advertising Campaigns
Investing in marketing and advertising is crucial for business growth. A term loan can provide the funds needed to launch comprehensive marketing campaigns, helping to attract new customers and increase revenue.
Building Financial Credibility
Successfully managing and repaying a term loan can improve your business credit score, making it easier to secure additional financing in the future. This can lead to better loan terms and lower interest rates, further supporting your business growth.
Using term loans strategically can provide the financial boost needed to achieve your long-term business goals and secure a competitive edge in the market.
Explore Accounts Receivables Funding with a Leading Factoring Company
In addition to invoice factoring’s universal benefits, Charter Capital helps small businesses thrive with low rates, transparent pricing, no long-term contracts, same-day funding, and personalized service. To find out how factoring fits in with your business funding needs, get a complimentary quote from Charter Capital.
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