Navigating PPP: 3 steps to secure new Federal relief

In the last year, the fight for business survival has been particularly difficult. This was especially true for very small businesses, and most restaurants and food services ventures fit into this category. With the average American restaurant having fewer than 50 employees, it's no surprise that food services were among the hardest hit by COVID-19.

Thankfully, with the signing of the latest stimulus bill, new federal relief for small businesses is on the way — but restaurateurs are likely to receive news of this funding with skepticism, and I don't blame them.

Working at Nav, a fintech company that helps SMBs secure financing, I saw how the first round of aid fell short for the smallest businesses, restaurants included. In 2020, our team helped over 4,000 business owners secure loans through the Paycheck Protection Program, but we also know that many were left behind, often due to the sheer resources required to navigate the process. According to a Government Accountability Office study, forgiveness applications alone take up to 15 hours to complete and more than three days for lenders to review. Many restaurant owners simply don't have that time.

Another reason the first round of PPP failed too many restaurants was its heavy emphasis on payroll. In the first wave of PPP, you had to spend 75% on payroll-related expenses, later reduced to 60%. For many restaurateurs this did not adequately address their most pressing needs, like rent or mortgage payments. What's more, those that significantly cut down on staff had to choose between paying employees who couldn't come to work or letting them collect unemployment, the latter often resulting in more money for the employee.

After digging into the new bill, while similar to round one, second draw PPP loans will bring some subtle changes that should benefit restaurants. For instance, the way you can use the funds is more flexible, and there are favorable tax changes. That said, the process can still be overwhelming, especially for businesses with already-strained resources. With learnings from wave one of PPP in mind, here are three steps restaurant owners can take to streamline their pursuit of new federal relief.

1. Start by figuring out what you're eligible to apply for.

If your business already got a PPP loan but needs more funds to survive the crisis, there's good news. You may be eligible for a second PPP loan. To be eligible, businesses must qualify as a small business according to the SBA standards, but they also must employ fewer than 300 employees, and have suffered at least a 25% gross revenue reduction in at least one 2020 quarter compared to 2019, with special terms for seasonal businesses or companies that weren't in business for the entirety of 2019.

Didn't get a PPP loan the first time? You may also be in luck. Congress has allocated funding for first-time loans under the same terms as the original PPP loans; second draw loans for those who already got a first-time PPP loan and still qualify, and; "gap" loans for businesses that returned their first loan or didn't get the full amount they qualified for. If you're not sure where to begin, there are free resources available that help business owners figure out what financing and forgiveness they are eligible for, like Nav's PPP Loan Calculator.

In addition to PPP, restaurants may be eligible for an Economic Injury Disaster Loan, including a grant of up to $10,000. Businesses that already applied for EIDL may qualify for the $10,000 grant this time around, even if their previous application was turned down. Businesses apply for EIDL at SBA.gov.

2. Approach the application process strategically — you have options!

The most important thing you can do to prepare for this round is to make sure your bookkeeping is up to date. The information from your accounting will be needed to determine whether you qualify. In the last rounds of PPP and EIDL, many businesses had trouble applying because their information was out of date.

In addition, it's a good idea to have a business bank account so you can track how you spent these funds. Both programs restrict the use of funds to certain types of expenses.

Next, don't feel like you have to work with your bank. You can apply through any lender approved by the SBA. As we saw with the first round, the way PPP is set up means banks often prioritize those they already have loans with and then larger accounts, before prioritizing the smallest businesses (many restaurants included). This is because most traditional banks aren't incentivized to serve the smallest businesses. Consider your options beyond traditional channels; in the last round, for instance, we saw that many smaller businesses were well served by fintech companies. A strategic approach to selecting a lender could be the difference between securing much-needed aid or continuing on without it.

3. If you don't qualify for PPP or EIDL, don't panic.

If you qualify for PPP and EIDL, you should apply. You can even apply for both programs, and if you do qualify for both, I recommend it. PPP may be completely forgiven and EIDL may offer a grant that doesn't have to be repaid, along with a 30-year loan at 3.75%. But these COVID-19 relief programs aren't available to everyone. They aren't designed for startups, for example; you must be in business by Feb. 15, 2020 to apply for PPP and by Jan.31, 2020 to apply for EIDL. If you started around the pandemic and haven't gained traction yet, you will need to look at other financing options.

Crowdfunding, for example, has been a source of relief for some small businesses during the pandemic. There are four main types of crowdfunding restaurants may consider: rewards-based, debt-based, equity-based, and donation-based. Whether you're offering a reward to your backers, taking out a loan, securing investors or accepting donations, across all of these options, the key to successful crowdfunding is connecting with a loyal fanbase. To that end, building a solid email list and investing time in engaging social media content can go a long way.

Know, too, that there are still new COVID-19 relief grants and loans coming out at the state and local level. Owners should join the mailing list for their local Chamber of Commerce, SBA regional office, as well as their local Small Business Development Center and SCORE chapter so they can learn about new opportunities when they arise.

With that, I wish you the best of luck and hope to dine safely with you again soon.