Women and minorities receive the lowest approvals for business loans, so it shouldn’t surprise anyone that the same held true with the federal CARES Act Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan Program (EIDL). An ABC News report showed that up to 90% of minority- and women-owned businesses may be shut out of the PPP program, which has now been extended to Aug. 8.
Many business owners didn’t submit the required documentation that was requested on the loan applications. This resulted in many being rejected or not getting funded. In order to respond quickly to funding opportunities, the following tips can help a small business owner simplify the process of filling loan or grant applications for their business.
Business formation documents, structure and ownership: Is your business a sole proprietorship, LLC or corporation? Is your business woman-owned? If so, it needs to state that in your formation documentation. If you don’t know where your business filings are located, you can find them online either through the county clerk’s office where they were filed or through the state comptroller’s website. Make sure you check to see that your business is current on all taxes and is in good standing with the state. These documents also show that you are a legitimate business.
Current tax return and the previous two years are helpful: The tax forms will vary depending what type of entity your business is. Even if you have a tax preparer, you need to know and understand these forms and will need to provide these with your application.
Make a banking relationship: Having a personal relationship with a banker is crucial when your business is seeking funding. It was a priority when applying for the PPP and EIDL loans. Banks give priority to their customers, and having a banking relationship would have helped expedite this process.
Know your business investment: Lenders and grantors want to know that you are committed to your business and that you have skin in the game. When looking for financing, they may be looking for up to 20% of owner investment. That investment could be made up of inventory, equipment or cash. Your investment can also help keep you from overspending or purchasing things your business doesn’t really need.
Payroll reports: For many of the loan or grant opportunities, you will need to provide your payroll costs. These typically include employee salary, wages and commissions; payment of cash tips; payment of vacation; parental, family, medical or sick leave; allowance for dismissal or separation; payment required for group health benefits (including insurance premiums); or payment of state or local tax assessed on employee compensation; and for sole proprietors or independent contractors, income or compensation not in excess of $100,000 per employee.
If you are self-employed as a sole proprietor or independent contractor without employees, you must provide a 2019 IRS Form 1040 Schedule C to prove your own income. Check profit noted on Line 31. If Line 31 shows $0 or less, you do not qualify for a PPP loan.
Mortgage or rent documents: This could include your closing documents or a rental lease agreement.
Having your business documents compiled in one place will make filling out loan and grant applications much easier. The right documentation could make the difference whether your business is funded or not.