During the pandemic, many businesses struggled to maintain revenues. The situation imposed a crucial disruption in their cash flows. Near zero revenue meant that the employees of these businesses would have to accept reduced payroll or instead be laid-off, furloughed at best; a perfect scenario for possible industry collapse. The government thus stepped in to address the situation through the US Small Business Administration. With the help of various lending institutions, the PPP program was rolled out, also known as the Paycheck Protection Program. This program initially had a budget of $349B worth of forgivable loans aimed to aid the Small Business Community. The non-collateral loan package benefited companies with 500 employees or less, with some exceptions. Due to the extent that the pandemic dragged on, the US Government revised the program twice, with the last one in February 2021.
The Paycheck Protection Program
The purpose of PPP loans is mainly to prevent small businesses from laying off their workers. The maximum loan a small business could get was at most two and half times the salaries of its employees, inclusive of the contributions and bonuses. However, establishments in the food and accommodation industries can apply up to three and a half times their average payroll expense from 2019 to 2020, although limited to $2 million. Initially, PPP loans were strictly for employee payroll, and then the government introduced program revisions in the latter part of 2020. After the amendment, a minimum of 60% of the loan could be allocated for payroll, leaving 40% for other expenses such as rent, utilities, essential supplies, and employee protection gear. You also have only up to 6 months to spend the funds.
PPP Loan Forgiveness
The loan funds were tied-up to strict regulations, such as no firing of employees and no salary reductions. The enforcement of these conditions ensures that the funds were used as intended and shall determine if you would be eligible for loan forgiveness or not. A grantee was also encouraged to keep journals on the loan utilization. They were also encouraged to open separate accounts for the funds for easier monitoring. Application for PPP loan forgiveness entailed the submission of records and documents on how you spent the loan. However, there is no guarantee that your loan could be 100% forgiven. Applications for loan forgiveness are still for evaluation and review. The government has also released new guidelines for applying for loan forgiveness. If your loan is $150,000 or less, you will only need to fill up a one-page application form. Lastly, if you maintain proper recording of transactions, your business will be free from an audit. However, if your PPP Loan is $2 Million or more, it would automatically be audited.
Some PPP Issues and your Privacy
The Paycheck Protection Program has stopped accepting applications in June 2021. Some issues came up during its run; here are some of them. Some small business owners felt left out because lending institutions prioritized their clients’ PPP applications. Some sectors in the USA wanted to know the details of disbursement of the PPP loan funds, as these were public money. They also wanted access to information on the distribution of the funds. There were clamors for transparency on the utilization of the funds for the program. Issues such as who got PPP loans in Texas or the USA came up. There is now a database of grantees accessible on the internet.
Cash-Out Refinancing, An Easier Loan Alternative
Having alternatives to the PPP Loan should not be the question anymore as it has long been closed. There are, however, other types of loans that you can apply to without the pre-conditions and the terms enforced by a PPP loan.
If you need cash for your business, you can apply for a Cash-Out Refinancing loan where you offer your property, even if it is currently mortgaged, as collateral to a loan. In this refinancing method, your existing mortgage is supplanted by a new one, typically from the same lender. The new mortgage will have a higher loan amount, has a longer loan term, and usually a lower interest rate. In most cases, this scheme results in lower monthly amortizations, and the borrower will have additional funds for their projects and other business plans. Compared to a PPP Loan, a Cash-Out Refinancing has no program for loan forgiveness. Cash-out refinancing can help you finance your business plans without the pre-conditions of a PPP Loan.
Cash-Out Refi Advantages over PPP
You may want to take note of the following advantages of a Cash-Out Refinancing Loan:
- Application is hassle-free, and it only takes about two weeks from application to funding release, provided all requirements, terms, and conditions are satisfied.
- You are not obliged to follow a guideline on spending the loan funds. You do not have to spend it on salaries and other expenses, as mandated by a PPP Loan. How you spend the cash derived from Cash-Out Refinancing transactions depends solely on you.
- You do not have to maintain a strict record of how you disbursed the funds from the loan because these records help determine if you qualify for loan forgiveness or not.
- You are not limited to a loan amount based on the total salaries of your employees. Instead, the cash-out will depend on the appraised value of your property and the remaining balance. Thus, a high valuation coupled with a low principal balance will net you a higher cash-out.
- There will be no auditing of your business because of the refinancing.
- Under ideal conditions, you can refinance as many times as you like.
- Maintain the privacy of your financial transactions. There are no way loans from private money lenders will be published.
More Loan Flexibility Helps you Better
Cash-Out refinancing does not hold you on pre-conditions and strict monitoring guidelines to get a loan. Further, you can avail of it almost anytime subject, of course, to evaluation. Cash-out refinancing offers you a lifeline for your business, funding for business expansion, or, to some extent, funds for personal consumption. It is a versatile mortgage product that caters to your business needs. This loan product can release your much-needed funds in 2 or 3 weeks without the conditions of heavy monitoring. A Cash-Out Refinancing does not limit you to using the funds only for what is prescribed by a program. If you need to know more about this loan, GL&L Holdings can give you more details. Need to know more information about our refinancing program? Call us now at 832 7709415, email us at info@gllholdings.com, or visit us at our office in Houston, Texas.
