Are you ready to apply for the new PPP loan?
The Paycheck Protection Program (PPP) is an SBA loan that helps businesses keep their workforce employed during the Coronavirus (COVID-19) crisis. The loan provides loan forgiveness for retaining employees by temporarily expanding the traditional SBA 7(a) loan program. The SBA will forgive loans if all employee retention criteria are met, and the funds are used for eligible expenses.
According to the SBA website, the SBA will open the portal for the new PPP loan on Monday, January 11, 2021 at 9 am ET. When the PPP loan portal system opens, it will initially accept First Draw PPP loan applications from participating CFIs, which include Community Development Financial Institutions (CDFIs), Minority Depository Institutions (MDIs), Certified Development Companies (CDCs), and Microloan Intermediaries.
If you are thinking about getting the new PPP loan or any other business financing, then you should know about the basics before you get started. If you understand the basic dos and don’ts of loans, then you will be better equipped to find the best loan for your needs. Whatever type of loan you are applying for, be it the new PPP loan or something else, you should follow these basic rules to help you determine the best solution for your needs.
Shop around
When searching for a loan, it pays to do your research. Look for as many suitable lenders as you can, so that you can find the very best deal. There are many online pages that allow you to compare loan rates from a variety of lenders. In additional to looking online, check out your local banks and mortgage lenders for deals too. If you ask for a detailed quote, the lender will have to look at your credit report which will result in a hard inquiry. Too many lenders looking at your credit report can affect its rating, so make general inquiries until you are sure the lender is right for you.
Look beyond APR
When shopping for a loan, you should look past the promotional APR rates and terms, and ask the lender what the monthly repayments are. Low APR rates are good, but you need to find out what rate you can actually receive, what the repayment terms will be and if there are any additional charges. Think about the total interest payments on the loan rather than just the monthly payments. Low interest rates is one reason the new PPP loan is a great option for small businesses.
Look at protection
When taking out any loan, it pays to have insurance protection in place in case you fall ill or otherwise have your business activities interrupted. This way you won’t be left unable to repay your loan obligations. Look at the cost of taking out such coverage, both with the lender and with other companies. Also make sure that you cover as many risks as possible. At the bare minimum, you will need liability protection but a comprehensive business owner’s plan will provide you the best bang for your buck.
Avoid using collateral
If possible, try and avoid taking out secured loans. If the amount you need to borrow is small or you have good enough credit to borrow without collateral, then do so. Although unsecured loans have higher rates, they are less risky because your assets will not be at risk if you cannot make the payments.
Check and double-check
Before signing any agreements, check and double-check all of the terms and small print. Some lenders will put the most unfavorable clauses in the agreement in a place you might overlook. Look at what happens if you miss payment or the payment is late, and if there are any additional penalties or charges, such as charges for early repayment. If possible, have an attorney review the loan agreement as well.
Get short terms
Try and take a loan out over the shortest period you can afford. Taking loans out over 10 years or more can be risky, and you cannot be sure what your financial situation will be at that time. Of course, taking out a long-term loan for real estate may be acceptable, but the longer the period of the loan, the more you have to pay back.
Whatever type of loan you want, be it the new PPP loan or another type, make sure that you know you can afford to make the repayments, and that taking out the loan will help you financially.
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