UPDATE: Additional funding for the PPP has been made available. As of April 27th at 10:30am EST they are accepting new applications.
There is a lot of uncertainty going around right now beyond health concerns: what will happen to my family's dream home if I have to miss a few mortgage payments? How do I as a small business owner take care of myself, my employees AND my customers? Is there going to be any toilet paper at the store?
The bad news is, that as much as we've tried to nail down our local Charmin truck's delivery route, we just can't predict which stores will have toilet paper. But more importantly, we have good news and lots of helpful tips on the finance front! Check out our last
blog for the answers to any questions you have about personal financial stress. If you're a small business owner, read on.
Scholar Raise is a small business with big dreams, and this time is stressful for us too. The great news for our customers - Scholar Raise users - is that the funds for your 529 are held by the State of NY Treasury Department! So to address the elephant in the room: no matter what happens to us in these uncertain times, your money remains safe with the state. That being said, there's no need to worry about us, we're doing fine.
Regardless, we wanted to make sure we were making the best decision for our company and our employees, so we started digging into the CARES act to see what our options were. We realized that there seems to be a lack of concrete information out there, so thought we'd share what we found in the hopes that we could help out the other small business owners out there.
Let's take a step back. The CARES Act was signed into law on March 27, 2020. This act contains $376 billion in relief for American individuals and businesses. At first blush, the act seems simple enough. But as you start to dig in, there's a lot to digest and work through, whether it's the stimulus checks for individuals or financing options for small businesses. We don't have all the answers as much is still being clarified, but we have worked through a few of the bigger questions and have simplified them for you.
Quick history flashback: during the 1919 Spanish Flu Pandemic, you could either stay home to prevent contracting the flu - which would basically guarantee starvation for your family, or you could risk the health of yourself and others by heading into work for that paycheck. We have benefited greatly from the last 100 years of advancement in societal and economic engineering. We ran the numbers and understand that it makes more sense for the long-term viability of our economy to shelter at home and essentially shut down. At the end of the day, the government wants the economy to bounce back after the pandemic, and keeping people employed, paid and spending during this time is a way to help mitigate the knock-on economic effects. Luckily, it appears to be a bargain for the government to pick up the check for that lost GDP. Hence, the CARES Act of 2020.
As we mentioned, there are several parts to the act, but today we are going to dig into the
Paycheck Protection Program for small businesses. This is a forgivable loan, ( ie: a grant or "free money") as long as you qualify AND use it for its intended purposes. The full faith and desire of this program is to maintain people's employment status (yay paychecks) and keep them off unemployment. However, because this is a government program, you should expect the usual delays and red tape. At first blush this seems like a no brainer, but there are many questions to be answered to see if this is right for your business and/or how to go about it.
Scholar Raise has not taken out a loan previously, so we needed to first see if our bank was a small business lender. From there, we requested more information on the program so we could understand if we were eligible and what would be required of us. Here's a distillation of what we've learned:
At the end of the day, the PPP loan is to help companies who are experiencing employee hardship as a direct result of COVID-19. Thankfully, our 2020 budget planning allows us to continue keeping our small team paid, so we decided that the Paycheck Protection Program wasn't the best fit for us. However, like many small businesses our profit margin has been impacted as many people are temporarily halting all non-essential spending. Our profits are used for other operating expenses and are also reinvested in improvements for our customers, so we applied for the Economic Disaster Loan (EIDL). We'll jump into the EIDL further on our next blog, so keep an eye out of that!
*Please keep in mind this information is changing rapidly and is based on our current understanding of the programs. It can and likely will change, so please do not solely rely on this for your financial decisions. We encourage you to consult with your lawyers, CPAs, and Financial Advisors.
Keep safe, stay informed and contact your representatives for more funding.
Wes & Ashley
