I have my PPP Loan for my business now, what is the most effective way to use it for my online ecom business/agency/consulting brand?
This is Part 2 of a 3 part series and if you haven’t checked out Part 1, I highly recommend you check out that video first before watching this. So this video assumes that you have been accepted for a PPP loan and you have the funds in your bank account. So the most important thing to remember is to track all your expenses immediately as there is a chance for an audit to occur especially if the amount of your PPP loan is above $1M dollars. You want to be able to prove that you are using the funds to maintain your workforce.
So the most recommended path to use your PPP loan is in this order:
Direct wages/Salary, health insurance, benefits, and the associated payroll taxes. That should make up 60% of your loan. The remaining 40% should go to Utilities (Water, electric, gas, etc) and the cost of your rent or mortgage.
One important thing to note is you must be able to prove that you had this bill or utility in your business since before the COVID period started. This means you can not go and start a new bill with an electric company and try to claim this expense. You must show proof to your banker or whoever you get the PPP loan from that this expense, or rent/mortgage existed before the pandemic started, so that is something to keep in mind.
Why split your PPP loan this way?
It’s actually really really important to split it this way. This is so that if you do apply for forgiveness for this loan, you will have a much greater chance of meeting all the qualifications to get your entire loan amount forgiven for your business. That’s right this loan has a forgiveness component that could mean that you would not have to pay back a single penny on this loan if you do set it up the right way.
Paying For Salary Using PPP
Also, there’s an important note to remember for salary. The salary amount per employee cannot exceed $100,000 annual salary per employee, so if you do have someone that makes say 140,000 then you need to round down that employee’s salary to $100,000. The SBA gives you an option of spreading the loan over 8 weeks or 24 week period and I think in most cases you will want to spread this over the longer period, so that you can ensure most of the loan will go toward direct payroll cost, as that will increase the chance that the loan will be forgiven.
The PPP loan is a great program and I highly encourage all of you business owners to apply for it. Even if the loan is not forgiven, at a 1% interest rate it is a great tool to ensure you have the cash flow to maintain your business for the long term as we get past this COVID economic period.
You have until March 15th 2021 to apply for the loan and I would say the sooner the better as you will have a better chance of being further ahead in line to get a piece of the pie. If you have any questions about the PPP loan, feel free to drop a comment below and I will answer them for you.
Additionally, if your business is looking for an all in one solution to save on taxes and have amazing bookkeeping done on your behalf or if you need more guidance on the PPP loan you can click the link in the description and book a free consultation call with FCF Agency, and we will see if we can be a great fit together. Remember, we only take on clients that we can make an impact on, so if we are a great fit, then get ready to maximize your profit this year.