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New stimulus bill: 5 mistakes that can cost you a COVID relief grant or loan

The second stimulus bill, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, has been passed by Congress and signed into law. While you may be hopeful that it will help your small business, you may be unsure of whether you’ll actually be able to take advantage of any of the new relief. And, you may be working hard to avoid making any mistakes that might cost you that much needed relief grant or loan. 

If you missed out on a Paycheck Protection Program (PPP) loan the first round—or if you received one but still are struggling financially—you can apply with this second round of funding. These loans may be completely forgiven if spent on eligible expenses.

In addition, the bill added more funds for Economic Injury Disaster Loan (EIDL) grants. These grants, up to $10,000 for qualifying businesses, do not have to be paid back.

Still, with these programs, you need to avoid certain mistakes so that you can increase the odds of getting the financing your business needs.

Updated January 11, 2021: The SBA has released guidance for new PPP loans available under the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the Economic Aid Act). Here are the new application forms.

Mistake #1: You don’t have updated financial information

A key component of your application for either a PPP or an EIDL loan or grant is having the right financial documents to prove you qualify. 

You qualify for a Paycheck Protection Program (PPP) loan based on payroll, or if you are self-employed your net profit from your business, for 2019 or 2020. (You can generally get up to 2.5x average monthly payroll, with extra funds for second loans to businesses in the accommodations or food service industries). 

If you are seeking a second PPP loan, you will also need to have experienced at least a 25% drop in gross revenues from any quarter in 2020 compared to the same quarter in 2019 (or year over year). You’ll also need to provide proof of payroll, unless you are self-employed without employees. 

For the EIDL loan or grant, you will need information from your most recent tax return, and you may need up to date financials to prove economic loss in order to get the full $10,000 grant.

In the last round of PPP and EIDL, many business owners had trouble applying because they were behind in their bookkeeping. If your accounting isn’t up to date, now is the time to make sure you get caught up. 

Mistake #2: You don’t apply for aid you may qualify for

With the first round of funding, we were all still reeling from what has now become our new normal, and many small businesses missed out on getting the financial aid they needed simply because they didn’t know they were eligible for it. Don’t make that mistake this time.

You absolutely can apply for both the PPP and EIDL programs. The sooner you apply, the better, because funding has run out in the past.

Even if you received a PPP loan previously, you may qualify for a second PPP loan, as long as you used all of that money on qualifying expenses before applying for another round (and meet the requirements). 

The point is: if you’re not sure what you qualify for, find out. Otherwise, you could be leaving money on the table that you don’t have to pay back.

Mistake #3: You don’t know where to apply

This is another easily-remediable mistake. You can apply for the Economic Injury Disaster Loan and grant at SBA.gov. The application is fairly straightforward. Note that the SBA is expected to release a new portal January 17, 2021. (Those that applied for EIDL in 2020 should wait for further instructions to request the full $10,000 grant.)

For a PPP loan, you’ll need to find an approved lender. That might be the bank you already have a relationship with, and it might not. Many found out last time that it was easier to look beyond their bank to online lenders and were quickly approved for a PPP loan. You don’t need to have a prior relationship with a PPP lender to qualify for financing.

Mistake #4: You don’t have a business bank account

While this technically won’t deter you from qualifying for either of these financing options, it may make it more difficult to get those funds deposited. 

And using a personal account for both personal and business expenses may make it more challenging to track what you spend your PPP funds on, which may make applying for loan forgiveness more challenging.

It’s best to have a separate business checking account so you can track what you spend through business accounting software.

Mistake #5: You haven’t thought about forgiveness

If you’re just now applying for a PPP loan, getting it forgiven might be the last thing on your mind. But you’ll have 8-24 weeks after you get the loan to spend it on approved expenses, and believe me: 24 weeks comes a lot sooner than you think! Think about  forgiveness from the start.

PPP loans are forgivable if you spend them properly, so familiarize yourself with what expenses qualify for forgiveness. These include:

  • Payroll (at least 60% of funds should be spent this way)
  • Rent 
  • Mortgage interest
  • Utilities
  • Covered operations expenditure (such as cloud software to run your business)
  • Costs related to property damage, vandalism, or looting due to public disturbances in 2020 that weren’t covered by insurance or other compensation
  • Covered supplier costs
  • Personal protective equipment and other equipment to comply with CDC and Department of Health and Human Services regulations

It’s a good idea to have a plan for how you’ll use the funds from Day 1 so you can maximize forgiveness.

With both the Paycheck Protection Program and Economic Injury Disaster Loan offering more money to small businesses, it’s worth the time and effort to make sure you qualify and apply with all the appropriate documentation. For many businesses, these funds have been a lifeline to survive these difficult times. Hopefully this second round will help more small businesses make it through until this crisis is under control.

The information contained in this blog is provided for informational purposes only, and should not be construed as an endorsement or advice from GoDaddy on any subject matter.