When you're running a startup and your main priority is to scale and expand, explore when it makes sense to hire a financial controller and other options you may consider.
Wednesday, April 1, 2020
Article last updated: April 28, 2020 @ 10:45am EST
Update: An additional $310 billion was infused into the Paycheck Protection Program, with applications reopening on Monday, April 27.
Startups and small businesses impacted by the COVID-19 crisis may qualify for federal aid as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
A number of programs and resources have been introduced and expanded for small businesses via the United States Small Business Administration (SBA) under the CARES Act. Based on types of support and eligibility requirements, The Paycheck Protection Program (PPP) has been identified as the most relevant fit for startups looking for financial support from the stimulus package.
We created Zeni to help startups manage every aspect of their finances and we are actively helping our customers prepare information and documentation to apply for the PPP loans, which became available on Friday, April 3. You can find the application here.
In this article, you'll find an overview of the CARE Act stimulus package as it relates to startups, common questions we are addressing with customers, and a checklist of the steps we are taking to help our customers prepare their PPP loan applications.
We will keep this post updated as additional information arises, sign up to receive updates directly to your inbox here.
The CARES Act provides an array of financial support to help startups and small business owners alleviate financial stress and support ongoing operations during the Coronavirus crisis. Programs are managed by the U.S. Small Business Administration (SBA) and include the following financial aid options for businesses affected by COVID-19:
For the purpose of our core customer base, startups, we've identified the Paycheck Protection Program (PPP) as the best fit for those looking to the CARES Act for financial assistance during this time.
The Paycheck Protection Program (PPP) was introduced as part of the CARES Act with the goal of keeping Americans employed during the COVID-19 crisis by offering small businesses financial support to cover baseline payroll costs and operational costs.
Administered by the U.S. Small Business Administration (SBA), the $349 billion PPP loans and loan guarantees program expands the existing SBA 7(a) lending program in order to accommodate a greater number of businesses.
Employee salaries and operational overhead are two of the largest categories of expenses for startups. Moreover, there are two distinct elements of the PPP loan that make it an attractive option for startups looking to the bill for support:
There are two key criteria to determine borrower eligibility of your business for a PPP loan:
However, there is still some uncertainty regarding the eligibility of venture capital-funded startups based on the SBA Affiliation rule 13 CFR §121.301 which governs Section 7(a) loans (that, you'll recall, the PPP was "built on top of"). On April 3, the Treasury Department issued a document to help clarify the affiliation rules applicable to determining PPP eligibility, found here.
Tech industry VC and Lawyer Ed Zimmerman, who co-founded and Chairs Lowenstein Sandler's Tech Group and VentureCrush, laid out the following three-question test to help determine if your VC-backed startup’s eligibility in Forbes:
If you answer yes to ANY one of the above questions, seek guidance from counsel, because you may then need to add together your employee headcount with that of your VC and all of that VC’s other “affiliates.”
If you answered no, to all three questions, that’s likely good news (still talk to counsel). Many U.S.-based startups WILL qualify for SBA Section 7(a) loans, despite the negative early guidance announced on this topic.
As the SBA ownership and affiliation guidelines governing the PPP loans are broad (federal regulation code 13 CFR §121.301), prior to applying, we suggest contacting your legal counsel to confirm/obtain the following pertaining specifically to your PPP application:
According to a fact sheet issued by the U.S. Treasury Department regarding the Paycheck Protection Act, as part of your application startups and small businesses must certify in good faith that:
Once you've decided to apply for the PPP, follow the checklist below to help you prepare and organize your application:
The PPP application was made available on Friday, April 3 and can be found online here. However, most banks are not yet accepting applications as they await final guidelines regarding the application requirements and verification process.
Based on the application, the following information must be provided by startups or small businesses in the application:
During the application process, borrowers will be required to share documentation to back up the claims made in the application, which will likely include:
PPP applications went live on Friday, April 3, 2020 and businesses can apply for the loans through June 30, 2020, or until the $349 billion fund has been exhausted.
The loans are facilitated by third-party banks, credit unions and other lenders, and guaranteed by the SBA. The application was made available on Friday, April 3 and can be found online here.
Many banks are offering online applications, so check with your existing bank or lender to understand if they are participating in the PPP and their method of applying first. As of Friday, April 3 many banks have yet to open their application process as they await final guidelines from the Treasury Department regarding the application requirements and verification process.
If your existing bank or lender are not participating in the PPP, then you should find one of the approximately 1,800 private lenders are currently approved to issue the loans (the same lenders currently processing SBA 7(a) loans). Additionally, the Treasury Department plans to issue new regulations making it possible for nearly all FDIC-insured banks to make SBA loans during this time, stay tuned for updates.
Within 1-3 weeks of your application being accepted.
New information regarding the SBA's Payroll Protection Program is being shared by government officials daily. We'll be updating this blog post with information as it becomes available. Please check back, and sign up to receive updates directly to your inbox here.
Understanding the (literal) in's and out's of your business finances is critical for leading your business through an economic downturn like we're experiencing with the Coronavirus crisis.
To help startups through this tough time, Zeni is offering startups who've raised up to $1 Million 2 months free, plus 20% off for next 4 months of a Full-Service or Bookkeeping plan. If you're interested in learning more and trying Zeni, book a demo today or drop us a line at email@example.com.