What Should You Do After Your PPP Loan Runs Out?

The Paycheck Protection Program was closed on August 8th, 2020 leaving many businesses vulnerable to financial difficulty and potential closure.

This year has been challenging in many regards and the damages that many businesses have incurred as a result of the pandemic are yet to be fully realized.

The CARES Act, specifically the Paycheck Protection Program (PPP) loan, set out to help businesses keep their workforce employed during the Coronavirus (COVID-19) crisis. However, this program was closed on August 8th, 2020 leaving many businesses vulnerable to financial difficulty and potential closure.

While the US federal government has agreed that another round of funding is needed, they have yet to finalize a new pandemic response bill. So what options are available to small business owners that are in need? Below are just a few options available to business owners experiencing financial hardship as a result of the pandemic.

  1. Personal Loan.

Depending on your past credit history, a personal loan might help you bridge the gap and cover your payroll expenses for a short period. While personal loans are generally used for personal expenses, such as consolidating debt, using one to reduce the chance of needing to file bankruptcy could be considered in an emergency. A personal loan is generally more significant than what you can receive with a hardship loan and can potentially cover you longer.

  1. Hardship Loan.

If your credit doesn’t allow you to take out a personal loan, you can also consider applying for a coronavirus hardship loan. While these loans will need to be paid back, payments may be deferred for a period of time. The terms of these loans are often short, ranging from 12 to 36 months, and are only intended to tide you over until you recover from hardship. These factors will often limit the loan amount to under $5,000.

  1. Conventional SBA Loan.

Another loan option could be to take out a conventional SBA loan, although the process requires that you prove the ability to cover current debt, operating expenses, and any additional loan payments out of your current cash flow. The application process is highly documented and can take months for the bank and SBA to approve.

  1. Home Equity Loan.

If you have excess equity available in your home or if you own property through your business, you are able to use that capital to help your business along. It’s important to understand that the appraisal process could take months and that pulling money out of an asset, like a home, is a considerable risk. If your business is unable to recover following the pandemic, you could be at risk of jeopardizing your home’s equity.

  1. Bring In a Partner.

If all else fails, it may be beneficial to bring in a new business partner to help you get through the economic downturn. If you’re able to identify an individual with cash and an interest in investing in a business like yours, you may be able to sell a portion of the business.

Congress may eventually determine that another round of economic relief is necessary, but until that is finalized it’s important to understand the options that are available. If you have questions regarding the best course of action for your business, or are in a position where bankruptcy seems imminent, please contact our team of experienced attorneys for guidance.

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