After PPP: Financing Options to Keep Your Business Going

Although the economy has stabilized and many businesses have resumed normal operations, the pandemic’s effects still linger for countless small- and medium-sized business owners. Businesses of all kinds continue to face erratic revenue streams due to unpredictable fluctuations in COVID-19 cases, supply chain disruptions, labor market challenges, and inflation concerns. It’s a brave new world for business owners, and one that leaves many of them in search of funding to stabilize their operations and stay afloat. Unfortunately, extra federal funding allocated during the throes of the pandemic has largely dried up. After disbursing more than $800 billion in federal loans, the Paycheck Protection Program (PPP), along with many other pandemic-related programs, came to a conclusion in 2021. Where does that leave all the businesses that still need help? If you’re one of them, are you hung out to dry? Thankfully, no. If you’re still struggling in a post-pandemic market, there are plenty of loan options that can help you find your footing. Whether you’re hoping to pivot to serve a new market, finance the purchase of a major real estate asset, or just keep your doors open until the aftershocks of the pandemic subside, here’s a look at a few funding opportunities you should consider.

PPP Loan Forgiveness

If you did receive PPP funds at any time before the program expired, you may be eligible for full PPP loan forgiveness. Removing debt from your books is a great way to free up cash flow without taking on additional liabilities, so this strategy should definitely be the first place to start. Eligibility will vary based on when you received your PPP loan, which either had an eight- or 24-week period in which you had to use all the funds. You had 10 months from the day that period ended to submit your application for PPP loan forgiveness. So, if you received a loan with a 24-week usage period on May 1, 2021, you would have until August 16, 2022, to apply for loan forgiveness. Additionally, you’ll have to meet the following criteria to qualify:  

• You didn’t cut staff or wages.
• You spend the loan proceeds on payroll costs and other eligible expenses.
• You spent at least 60% of the proceeds on payroll.

If you took out an Economic Injury Disaster Loan (EIDL) during the pandemic, you’re not eligible for loan forgiveness. However, the SBA recently announced extended deferment programs for these borrowers, which may allow you to put off payment for up to 30 months.

SBA 7(a) Loans

SBA 7(a) loans have long been an anchor for businesses in need of flexible funding with reasonable terms. You can use them for nearly any purpose, from real estate and renovations to acquisitions and expansion.  A 7(a) loan can extend up to 25 years and comes with lower down payment requirements than many other business loans, and you can usually pay it off early with no penalty. If you’re a for-profit business with no more than $5 million in revenue over the past two years and a maximum net worth of $15 million, you may be eligible for up to $5 million in SBA 7(a) funds.

SBA 504 Loans

Are you looking to purchase equipment or build a new facility for your business? The SBA 504 loan is designed to help businesses purchase, build, or renovate owner-occupied commercial real estate or buy heavy equipment to expand business operations.  With a 504 loan, you may be eligible for up to $22 million in funding at rates as low as 3.63%. As with 7(a) loans, you must be a for-profit business, not publicly traded, and at least 51% of your ownership must be  U.S. citizens or legal permanent residents. The same revenue and net worth limits apply, as well.

SBA Microloans

Perhaps you just need a little bit of cash or have to purchase some minor equipment or inventory to keep your operations running smoothly. If you’re not looking for a substantial loan, the SBA microloan program may be a good fit. These loans provide up to $50,000 in funds for working capital, inventory or supplies, furniture or fixtures, and machinery or equipment. Loan specifics vary depending on your lender, but payment terms can generally extend up to six years.

Conventional Business Loans

Conventional business loans come in all shapes and sizes, and you can use them to fund a wide range of business needs. You can find traditional term loans for working capital, equipment, inventory, real estate, or virtually anything you can imagine.  Conventional loans typically come with a shorter term, higher interest rate, and more strict qualifications than SBA loans. They’re best for established businesses with strong credit and a proven track record, but they can provide a significant boost if you qualify.

Business Line of Credit

If you prefer a more flexible form of funding, a business line of credit (LOC) may be a good option. Depending on your business’s finances (and the financial situation of you and any partners), you may be able to qualify for an unsecured LOC with no collateral.  Business LOCs have many benefits. You’ll only pay interest during the draw period, so you can keep valuable cash on hand for a major project or business expansion effort. They help you even out cash flow, and you can limit your borrowing only to what you need. However, know that they can be expensive and rates can fluctuate, so it’s important not to bite off more than you can chew. 

CDFI and Other Nonprofit Lenders

Many specialized lenders exist to serve mission-driven organizations or underserved businesses. Community development financial institutions (CDFIs) support businesses in distressed or low-income communities, and you can find them in the form of banks, credit unions, venture capital funds, and other sources online and in your area. Nonprofits bolster a variety of ventures, from minority- and women-owned businesses to companies with a cause, so do some digging to see what might be available to you.

Crowdfunding

Crowdfunding has been a boon for many businesses over the past decade or so, and it’s an attractive option that can bring in some cash flow with limited risk. Particularly if you’re trying to launch a new product or specific service within your business, this may be a good choice. There are quite a few crowdfunding platforms out there now. Many follow the original Kickstarter model — you designate rewards for your backers and fulfill those promises once the project is funded and completed. However, equity-based crowdfunding has gained steam in recent years, too. Sites like Crowdfunder, Republic, and CircleUp allow you to offer ownership shares in exchange for capital.  The biggest downsides of this option? Your project may not get funded at all, or you could end up in over your head with more demand than you planned for. And in the case of equity, you could lose substantial ownership of your company if a project really takes off.

Riskier Loan Options

Finally, there are some riskier loan options for struggling businesses, but you’ll want to be careful about what financial situation you’re getting yourself into. You could apply for a merchant cash advance, which allows you to borrow from future sales, but MCAs can be incredibly expensive to repay. Invoice factoring, which gives you an advance on unpaid invoices, is another option — but again, the cost is steep. Proceed with caution when looking into these financing options, as they could create a vicious cycle of interest payments that is difficult to escape. Fortunately, in most cases, you don’t need to take big risks in order to fund your business and establish some stability, even in the unpredictable times we’re currently enduring. There are many business loan options out there as long as you know where to look. Get in touch with Fountainhead today and we’ll help you find the right loan for your business.