Why preparing for the next round of PPP is good for long-term planning
One of the more troubling issues that came out of the first round of the CARES Act concerned how many minority-owned businesses were left out of the Paycheck Protection Program, or PPP. There were several factors at play, but in the end, many Black and Latinx business owners missed out on a program that was designed to help small and midsize businesses cover their payroll, rent and utility payments in a time of crisis.
Congress passed a new COVID-19 relief package in December, which includes provisions designed to aid minority-owned businesses in obtaining PPP loans. Also, President-elect Joe Biden has indicated that his administration will pursue additional relief, with a focus on helping minority-owned businesses.1 That’s why it’s now a good time to review how minority-owned businesses can improve their chances of taking advantage of government programs in the short term—and how those same tactics can help set up your business for long-term success, as well.
When PPP loans were initially made available in the spring, we saw that the lack of an established banking relationship was the top issue that hindered minority-owned businesses. In fact, applying for PPP was the first time even some larger, more established Black and Latinx business owners had ever sought a bank loan. And once owners realized they needed to scramble to find a bank, it was already too late. Even business owners who did have a lender found that they were pushed to the back of the queue.
“I initially didn’t receive the loan because all the funds were dispersed before my application was approved by my lender,” says Cornell McBride Jr., president of McBride Research Labs, a provider of premium hair care solutions in Decatur, Georgia.“ I felt my lender took care of their preferred customers.” In the end, McBride changed banks and was successful in getting funds by applying through BMO.
While the current iteration of PPP aims to address this issue, we believe it’s still in a business owners’ best interest to establish a relationship with a trusted banking team, particularly one that has had the experience of helping business owners secure PPP funds. That way, they can provide insights into the process that you may not have considered. It’s important to do this as soon as possible because banks must adhere to Anti-Money Laundering (AML) and other regulations, which require identification and validation of their customers’ businesses.
Even if your business is on stable ground, there may be factors you haven’t considered that could impact your liquidity down the road, so it may still be in your best interest to apply for a PPP loan.
“Our strategy at the beginning of the pandemic was to drastically cut costs and improve liquidity,” McBride says. “But our customers were doing the same and pushing out their payments over 120 days. We knew that we would have a cash crunch if we did not receive the loan.”
Lack of Access
The lack of a banking relationship doesn’t just affect your ability to access PPP loans. It results in a lack of access to other important matters that can negatively impact the long-term success of your business, including:
- Capital. When you don't have a banking relationship, you don’t have access to capital in the form of term loans or lines of credit.
- Education. A good banking partner doesn’t just execute loans, it provides expertise from different areas across the bank to provide insights and strategies unique to your company, your industry and the issues you face.
- Networks. Along with providing capital, a good banking partner can help connect you with others in your industry, with whom you can share best practices for navigating this environment.
Something we’ve discovered in our experience is that many Black and Latinx business owners feel that bankers often don't meet them where they are—often literally, since many of these companies are not located in central business districts. In our discussions with these owners, they express a desire to have a banking partner that not only has expertise in their industry, but one that shows genuine interest in the communities their businesses serve and can communicate with them in their primary language.
But it takes time to go through that process of determining who truly understands you, your organization, your workforce and the community you serve. That’s why consulting with your peers, whether it’s your competitors, suppliers or other trusted referrals who have longstanding banking relationships can help you find the partner that’s right for your business.
A good way to determine if someone will be there for you is finding someone who has already been there for others. You might be surprised at how quickly people can answer the question, “Who do you know at a bank that you trust?” Because at the end of the day, the most important thing you need in a banking relationship is to feel like your banker has your back.
What You’ll Need Before You Apply
Another reason we saw businesses miss out on the last round of PPP funding was that they weren’t prepared with the right documentation. There was a narrow window between when the funds were available and when they were exhausted, and if business owners didn’t have their paperwork ready for their bank to submit the application, they quickly ran out of time to put it all together.
The documentation required to apply varies by ownership type and may require you to obtain certain documents from third parties. Also, businesses who received a loan in the first round are eligible to receive a second round of funding, though with more restrictive requirements. The SBA website has answers to frequently asked questions about requirements.
No part of this process is fun. You didn’t start a business to handle back-office paperwork. You’d rather be working with customers and growing your business. But beyond the application, there's a planning component to this process.
Establishing a banking relationship will reap long-term benefits both with the management of your finances and with the advice you’ll get along the way. Having an attorney and accountant can also help you make decisions that are best for your business. Often your banker can help make introductions.
You’ll find that while preparing your documents, you’re also reviewing your 2020 sales figures, determining what worked and what didn’t. You'll also begin forecasting how you’re likely to perform in 2021. The application process can force you to take a more disciplined approach to how you're running your business. That can be a daunting process, but it's a process that you don’t have to go through alone.
Working with a banking partner on the process can help you determine both your urgent and longer-term needs. In the end, while applying for a PPP loan is about getting immediate relief, going through the process of applying for the program can also help with the growth of your business. There are long-term benefits to evaluating how your operation has performed and how it’s expected to perform. And completing these tasks with a trusted partner can help position your business for future opportunities, whether it’s additional funding, an acquisition or expansion.
Managing Director, Commercial Banking, Head of Economic Equity Advisory Group
Anthony Hudson is Managing Director and Head of the Economic Equity Advisory Group for BMO Harris Bank. In this role, Anthony leads an experienced team of a...(..)View Full Profile >
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