Business

Post-PPP: What’s Next for Small Businesses Needing Relief to Rebuild

Many of the businesses we are working with now have taken PPP money and, for the first time in over a year, feel financially secure enough to consider expansion. Beyond PPP, financing options are available to small and medium-size businesses.
By Benjamin Johnston
December 15, 2021
Topics
Business

Businesses continue to grapple with the fallout, of the global pandemic. While states have mostly lifted restrictions, construction demand surges and supply chain disruptions have made certain materials scarce, creating long lead times and cost overruns, putting additional pressure on businesses trying to service their clients, pay their employees and still have something left for themselves.

Leveraging PPP and Growth Capital

The Paycheck Protection Program provided the relief many companies needed to see them to the other side of this crisis to stabilize their financial situation. The capital is intended to help business owners pay employees, pay outstanding rent and other bills, and invest in reopening and getting back to business. This is a five-year loan carrying a 1% interest rate so it is some of the lowest-cost financing small businesses will find.

Much, if not all, of the loan is likely to be forgiven just by paying bills and employees, so the program has tremendous benefits with limited downside. However, 60% of the forgivable amount must come from payroll, so if your business has reduced its staff significantly from pre-pandemic levels, not all of the loan may be forgiven.

Many of the businesses that have taken PPP money feel, for the first time in over a year, financially secure enough to consider expansion.

Financing Options

  1. SBA loans can be secured or unsecured and may carry fixed or variable rates. SBA loans used for equipment, working capital and inventory have a term of 10 years. SBA real estate loans have a term of 25 years. Personal guarantees are required.
  2. Equipment finance loans are generally secured by the equipment being purchased. They generally carry fixed rates and typically have terms ranging from three years to seven years. Personal guarantees are generally required.
  3. Term loans may or may not be secured, depending on lender and credit profile. Term loans come in a wide range of options depending on credit, term, fixed versus variable rates, position of lender in the capital stack and speed and ease of funding. A personal guarantee is often, but not always, required.
  4. Cash-flow based factoring products are generally unsecured, have variable repayment periods based on velocity of cashflow and generally do not carry personal guarantees.
  5. Revolving lines of credit are offered by bank and non-bank lenders, tend to be shorter in term, unsecured and often carry personal guarantees.
  6. Invoice factoring products are offered by bank and non-bank lenders as an advance against outstanding invoices for products and services already completed and delivered. These products tend to revolve every 30 to 90 days in accordance with standard payment terms and are secured by outstanding accounts receivable and a blanket guarantee from the borrowing entity.

The most challenging aspect of obtaining financing for many businesses today is the poor financial performance experienced during 2020 as the result of the pandemic. Banks and other lending institutions generally like to see steady, consistent cashflows year-over-year and look negatively on recent periods of volatility and unprofitability.

Non-bank small business lenders have developed underwriting models that weigh recent positive cashflows more heavily than historical financial results. That means they can offer capital to growing businesses as they recover based on recent positive cashflow data. And they also recognize the need for financing when business is slower and can structure transactions that support growth and sustainability throughout the year, despite seasonality and market turbulence.

What to Expect When You’re Financing

If your business is preparing to apply for growth capital, the application process can be as simple as providing the last few months of your business bank statements, a drivers license and the authorization to pull credit on the business and its primary owner. Funding like this can generally be provided in one to two days without the need to post collateral. For larger amounts of money at lower rates, lending institutions will often require additional information such as tax returns, financial statements, and purchase orders. Certain loans will require the business to post collateral such as equipment, inventory, or real estate. Larger loans with more favorable repayment terms generally require a more intensive underwriting process and longer approval timelines.

As businesses look to take advantage of the growth opportunities in the market, it is important that they not let their expenses get too far ahead of anticipated work. That being said, when a company needs capital to staff-up and purchase equipment in order to add new jobs, it is important to have a financial partner who can supply needed capital quickly and dependably.

by Benjamin Johnston
Benjamin Johnston is the Chief Operating Officer at Kapitus, one of the most reliable and respected names in small business financing. Kapitus provides growth capital to small businesses and has provided over $3 billion to over 50,000 small businesses since 2006. Kapitus has also helped hundreds of small businesses obtain PPP loans over the past year. Learn more at kapitus.com.

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