Increased PPP/EIDL Oversight: Three Things Small Business Owners Should Do Now.

In the State of the Union Speech this past week, President Biden called for increased oversight into COVID-19 Relief fraud. This article provides some details of what the government is doing to find EIDL and PPP fraud. We include several easy steps that every business owner should take to be ready for if and when they are investigated or audited.

By Thomas Tramaglini, Managing Director at BRP Onesta
info@BRPOnesta.com
www.backofficedepot.com
www.thomastramaglini.com
About Thomas Tramaglini

Joe Biden wants to be the new ‘Sheriff” in town when it comes to Pandemic Program Fraud

In last week’s State of the Union Address, President Joe Biden announced increased investigation of fraud in the Pandemic’s Relief Programs. Both borrowers and lenders need to be aware that the federal government will continue to work with the Department of Justice to find those who abused the system.

However, it should be expected that there will be more and more investigations coming.

Politically, with the government doling over $1.2 Trillion in EIDL and PPP funding it would make sense that the Biden Administration might try to score some easy points against greedy small business owners by showing that the Administration is tough and protects the American people from fraud.

Practically, as demonstrated by the Department of Justice and other organizations such as the Federal Trade Commission, some small business owners committed fraud. However, it is my guess is that there is plenty of fraud to be found as the government does not usually go after small business owners unless they know that they can find the fraud.

How bad was the Fraud?

The purpose of this article not to describe how inherent the fraud was but from what some watchdogs are showing, it was pretty bad. However, Yahoo Finance writer Dani Romero’s post on March 4 was pretty telling:

“Data from Accountable.US, a watchdog group, found that individuals with no employees, and making over six-figures annually – but received $20,833 in PPP funding, which was the maximum by the legislation.

Separately, a new paper published by the National Bureau of Economic Research reveals that was used accordingly. Of the $510 billion of PPP loans distributed in 2020, $115 billion to $175 billion went toward supporting jobs that would have otherwise have been lost, while about $335 billion to $395 billion ended up with business owners and corporate stakeholders, the paper found.”

The Department of Justice Coming Down Hard on Pandemic Relief Abusers

The government is promising to find those who cheated the government during the pandemic. I have written other articles on the schemes that some heroes of the pandemic have utilized. For instance, some business owners used fraudulent 940/941 forms which they submitted to banks and received funds. Other small business owners changed their business’ documents and were able to get funding (Several Examples Here).

Last week, the Department of Justice charged the CEO of an alternative lender MBE Capital with both fraudulent loan and lender applications. According to the docket, “Martinez [the CEO] used false representations and documents to fraudulently obtain the approval of the SBA for his company, MBE Capital Partners, LLC (“MBE”), to be a non-bank lender through the PPP. Martinez then used that approval to obtain approximately $932 million in capital to issue PPP loans and earn over approximately $71 million in lender fees. In addition, Martinez engaged in a scheme to obtain a PPP loan for MBE in the amount of approximately $283,764 through false statements regarding the number of employees of MBE and the wages paid to MBE employees and using the forged signature of MBE’s tax preparer. Martinez was arrested yesterday and will be presented today in Manhattan federal court before U.S. Magistrate Judge Katharine H. Parker.”

BEWARE! The DOJ is Showing Their Cards – They Are Using Data Analytics and Collaborative Tools Across Agencies to Find Those Worthy of Investigation

In several of the dockets and press releases that are available, the Department of Justice has indicated that it is using data analytics using collaboration between government agencies to find those who might have committed fraud.

I think that this is likely easy considering all they need to do is match data across databases. For instance, it cannot be very hard for the DOJ to match application data or funding data from the SBA to the information in the IRS. In fact, one of the reasons why so many EIDL expansion loans have been declined after approved for the original funding is because many of the applications could verify what the business owners reported on their original application to their taxes.

Could you be next?

Most small business owners who received their PPP or EIDL funds submitted correct and accurate data. Some did not.

It is surely plausible that small business owners did not try to defraud the federal government of Pandemic Relief Funds but made a mistake.

However, those who know that they used fraudulent documents or hired someone to submit the documents should understand that if the DOJ finds discrepancies that are blaring, expect an audit at a minimum.

“They are only going after the big fish” – NOT!

While the President in his State of the Union speech said he would be going after the most egregious cases, the database of fraud by Arnold & Porter suggests that there have been convictions with small business owners receiving as little as $10,000 in funding.

What does this mean for most business owners?

Most small business owners have nothing to worry about. However, with the announcement of more oversight and investigation, as well as the commissioning of a COVID-19 Fraud Enforcement Task Force and appointment of a Chief Prosecutor for Pandemic Fraud small business owners can expect that the government will be looking at two possible probes in their review:

  1. Were Pandemic Relief Program funds received legally?
  2. How were Pandemic Relief funds used?

Three things that small business owners can do to ensure they are ready for an audit or investigation.

  • Small business owners should review their loan application and forgiveness application to make sure that the proper loan amounts were applied for, received, and forgiven.
  • Some small business owners used a service or someone to apply on their behalf for their funding. Those who did this should know who did the application, what documents they provided, as well as have contact information for an auditor to contact.
  • Maintain a list with back-up of all expenditures which were made using the Pandemic Relief Funds.

Dr. Thomas Tramaglini is the Managing Director for BRP Onesta, a company that supports small businesses. By offering a host of important and affordable services that small business owners tend to not have time to do themselves, the team at BRP Onesta can help small businesses grow infinitely. Although located in on the famous Jersey shore, BRP Onesta serves clients in all 50 states, Puerto Rico, Mexico and Canada.

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What is a Merchant Cash Advance (MCA)?

Working capital loans are important to small business owners as funds allow small businesses to expand or at a minimum become nimbler than it currently is. However, small business loans, especially SBA and bank loans are not easy to get so many small businesses resort to easier options like merchant cash advances. In this article, we describe in some depth merchant cash advances. We also provide some implications and offer lower cost avenues to borrowing money for small businesses.

By Thomas Tramaglini, Managing Director at BRP Onesta info@BRPOnesta.com www.backofficedepot.com www.thomastramaglini.com About Thomas Tramaglini

Lack of Lower-Cost Options for Small Businesses

In recent articles I have provided an overview of the lower-cost options available for small businesses. Loans such as SBA loans are rare. For instance, in 2021 there were over 32 million small businesses in the United States and only a little over 12,000 SBA loans funded in the same year. That means, that the funding rate to small business is 0.00038%. That comes down to about 1 in 37,000 chance a small business would get an SBA loan.

These are not good odds for the typical small business owner, unless you are comparing to getting struck by lightning (1/114,195) or dying in an airplane crash (1/205,552).

Barriers in Place Make Sure Small Businesses

Overall, small businesses asking to borrow money present high risk to banks. Most banks do not want to lend to small businesses because about 1 in 6 small business owners (Voigt & Campbell, 2017). So, for banks to get to the place where they feel comfortable, they ask for and analyze every piece of paperwork they can. Banks also use terms such as Global Cash Flow (which most business owners cannot determine) and require full financials (which most small business owners do not have).

In short, it is my perspective that unless a small business has millions in accounts receivable or years of showing profits of 6-figures, the likelihood of getting a small business loan is grim.

The Devil is in the Details

According to the SBA data from the 7a lending report, in 2021 SBA loans totaled around $6.3 Billion. In comparison, the MCA industry alone (Rumore, 2021) totals around $19 Billion per year. Therefore, MCA dollars are about 3 times more prevalent in lending than SBA 7a loans.

Alternative Loans or Online Loans

Because it is so difficult for small business owners to get a small business loan at a bank (see This Blog Post for Data), there are options that present a much easier route. One such option are alternative loans or online loans from lenders who offer much shorter terms (6 months to 5 years). There are many advantages to these loans (time, less paperwork, fast approvals) and you can learn more about or apply with the options listed here. It is important that if you want to apply for a term loan or line of credit with one of these lenders you speak with someone who has knowledge of these products. Although the approval process is relatively fast, these lenders will still ask for financials, taxes, and other documents. Further, you can assume you will receive a hard pull on your credit and in some instances, they will ask to secure your loan. Our team of advisors has the knowledge of the different programs out there, can explain your options, and will prevent your application from getting shopped around the internet which will hit your credit negatively.

The Merchant Cash Advance

A Merchant Cash Advance (MCA) is one of the easiest funding options for small business owners because MCAs are unsecured, do not require strong credit, usually do not require collateral, and also require little documentation (if any). The average MCA file can be funded within a day and usually requires several months of business bank statements.

An MCA is not a loan but an advance of a business’ future receivables. Lenders gauge how much to advance a small business owner in several ways, including previous credit card sales and revenue going into their business bank account. Variables such as industry, number of deposits, daily balances among others are used by the lender to hedge risk. Regardless, MCA lenders offer to advance a portion of a small business’ future sales as well as an agreement with the business owner on the percentage of future sales which are being sold to the lender.

Interest and Terms

MCAs do not carry interest. Advances carry factor rates, which are also called buy rates that are simply an agreement of how much of a small business’ future sales will be paid to the lender. Some advances may also collect repayment terms by taking a portion of business’ credit card receipts each day as well until their agreed sale of future receivables is completed. MCA payback frequency varies depending on the risk and bank account statistics. For instance, if a borrower wants to have a monthly or weekly payment the lender gauges that opportunity off the average daily balance of the business in the business bank account. When daily balances are variable or lower MCA lenders may require a daily payment.

Probably the most negative part of an MCA is cost of money. MCAs can be expensive. That is, MCAs can be as high as +50% in payback. Also, most advances carry origination fees for the work by the lender, which can be as high as 10% of the loan. MCA cost of money is like how credit card cash advances operate and, in some cases, better.

Advantages of MCAs

Merchant cash advances have several advantages for small business owners, and some can include:

  • Fast funding – Some MCA companies can fund small businesses in 90 minutes.
  • Most MCAs do not have UCC liens
  • MCAs are not usually reported on personal credit
  • Funds are unsecured
  • Payment frequency can be flexible at times
  • Most MCAs do not carry a personal guarantee
  • Easily refinance options which can cut costs
  • No early payback penalties
  • Small business owners can build a relationship with the lender ultimately securing better programing
  • Few required documents (including taxes) for funding

IMPORTANT – Speak to Someone with Expertise and Who Cares (without obligation or cost)

It is imperative to speak with someone who is impartial when it comes to your borrowing options. MCA brokers make money off of your MCA (Points added for MCA brokers to the buy rate and in turn the sell rate is 10-20% higher than the buy rate). Many of the rip-off and illegal collection activities of lenders have been exposed and prosecuted in recent years as well (SEC and FTC have become more involved in holding some lenders such as Quarterspot, Yellowstone Capital, and RAM Capital.

That said, you should speak to someone that knows about the different options and importantly, tells you what they believe you can be approved for and WHY! This includes should include SBA and USDA to MCA options.

Up front, I believe that phone sales can be very valuable, if the person calling you is ethical and follows the rules of calling.

However, if you are called and asked the following it is probably an MCA broker and you should think twice before engaging in their questions.

Common MCA Broker Script:

  • What industry are you in?
  • What is your average revenue?
  • How many deposits do you make a month?
  • How many years have you been in business?
  • How many positions do you currently have?
  • What is your credit score?
  • Do you have any bankruptcies or judgments?

Our Team Cares – We Offer Lower Cost Options

Are you curious about what you would qualify for or want a specific product? Call us at (888) 315-2822 or simply request a no-obligation call. One of our team members will go over what we believe you can qualify for. In many cases, you do not compensate us in any way as we participate in volume profit sharing with lenders and never pass those costs on to you. What that means is that if the buy rate is 25% (cost of money from the lender) we will not increase your cost 10-20% to arrive at a 45-50% sell rate. Most of the time we can even cut your current payments without paying interest on interest.

Importantly, we care and will never push you in the wrong direction. So, if you currently have an MCA or MCAs and you want to consolidate those MCAs, give us a call. If you want to save money on a new MCA, we can get you there.

References

(Rumore, 2021) https://businessdebtlawgroup.com/state-of-merchant-cash-advance-during-coronavirus-pandemic/

(Voigt & Campbell, 2017) https://www.nerdwallet.com/article/small-business/study-1-in-6-sba-small-business-administration-loans-fail

Dr. Thomas Tramaglini is the Managing Director for BRP Onesta, a company that supports small businesses. By offering a host of important and affordable services that small business owners tend to not have time to do themselves, the team at BRP Onesta can help small businesses grow infinitely. Although located in on the famous Jersey shore, BRP Onesta serves clients in all 50 states, Puerto Rico, Mexico and Canada.

7 Things Every Small Business Owner Should Be Ready for When Applying for A Grant

Small business grants opportunities are out there! In this post we address some critical things that might serve as a roadblock to a small business owner getting the grant they apply for.

By Thomas W. Tramaglini, Managing Director at BRP Onesta info@BRPOnesta.com www.backofficedepot.com http://www.thomastramaglini.com About Thomas Tramaglini

Grants: They are out there – but are you ready?

Small business owners ask us all the time for grants which they can apply for that will support their new or established business. That is why we always keep an updated list of grants on our website which every small business owner should visit regularly.

Yet, in many cases small business owners are not successful in attaining a grant.

Grants represent a great way to access capital for a business, however there are several things which small business owners should be aware of before applying. Below, we provide a list of some important things which will help any small business owner in their pursuit of a small business grant.

1. Do your research

The people who provide Grants to small businesses are usually from non-profits or the government. In most cases grants have a specific purpose. Many times, small business owners will just “Apply” for a grant without seeing what type of grant is out there. One simple thing to do is to use a grant database to find the right program to apply for.

We have a few grant databases here to conduct your search

Grantors want to give funds to those who help the organization reach its goals. Some of the best examples are grants that support minority small businesses or veterans. If you are neither then don’t apply because you surely will get rejected.

2. Think like a grant reviewer

A great way to think about your grant application when you write it is to think like a grant reviewer. That is, if you are going to be the person or team reviewing the grant you are writing what would they be looking for.

Most grants have a list of what they are looking for in the grantee. Take that list and make your own list of grant requirements and use that to guide your application. Even have someone else review your application with the list you provided as a guide. Most grants are graded on a scale or rubric, so this is a helpful technique when writing your application.

3. Keep accurate records of what you are applying for

One common mistake that many small business owners make is that they do not save information regarding what they applied for. Then, when the grant reviewer(s) asks questions, or for supporting documents, the small business owner shows either insincerity or disregard for the grant which leads to q quick decline.

So – Take notes. Keep a file. Do whatever is necessary so that you are ready when the grant reviewer asks questions or for supporting materials.

4. Grants are usually not like EIDL and PPP

Over the past few years, small business owners have had a taste of PPP and EIDL programs. For the most part, there were few guardrails which small business owners had with the pandemic funds being doled. Regardless, there were a bunch of knuckleheads who did not follow the minor rules (Actual Rules Here) and paid the price for it (Fake 940/941s. More Lamborghinis, Rolexes and Real Estate, Oh My).

Grants have technical components that one must usually follow, and nobody is entitled to grant funds. Grant applications should demonstrate that the business owner is worthy of the funds.

5. Make sure that you are writing like you can write

On many occasions I have seen grant applications declined because they are poorly written. I have sat on grant panels myself and seen some awful demonstrations of the English language. Nobody expects a trucker to write like F. Scott Fitzgerald but run on sentences, misspelling, failing to proofread, and just not being to the point is what I have seen kill an application. Even for the worthiest small business owner. So, if you have been writing using slang or short texting words, a word to the wise – do not use those in grant applications.

If you are unsure if you are writing a good piece, send it to me anytime and one of my team members or I will look at what you wrote (info@brponesta.com).

6. Make sure you have the following:

In many cases, grant organizations will ask for the following things. If you need any assistance with any of these things, which are pretty much what every small business should have regardless, contact our team of advisors now.

  • Articles of Organization or Incorporation
  • Corporate Financials (P&L, Balance Sheets)
  • Business Bank Statements
  • Tax Returns
  • Business Plan
  • Operating Agreements
  • Privacy Policy
  • 2 Year Corporate Financial Outlook
  • Website Address
  • Company Overview

7. Use a grant writer

Most small business owners are not grant writers. In fact, most small business owners do not have the time to write grants or are not experienced in writing grants. Therefore, companies like ours (contact our team of advisors as we write grants) exist to help small business owners.

We are well schooled in the grants that are out there, as well as how to effectively write those grants.

If you are a small business owner and you want us to write one or more grants for you, we have a bunch of different grants and grant writers who will help you at an affordable rate. If you are interested contact our team of advisors now.

Sign Up for Our Secret Sauce Newsletter for Small Businesses and receive the link to 1 Tradeline Who Gives Business Credit for Free Click Here

Dr. Thomas W. Tramaglini is the Managing Director for BRP Onesta, a company that supports small businesses. By offering a host of important and affordable services that small business owners tend to not have time to do themselves, the team at BRP Onesta can help small businesses grow infinitely. Although located in on the famous Jersey shore, BRP Onesta serves clients in all 50 states, Puerto Rico, Mexico and Canada.

What Grants Are Available For Small Businesses?

Are you a small business owner and looking for a Small Business Grant? We always keep a running list of current grants available on our website and we just updated it.

By Thomas Tramaglini, Managing Director at BRP Onesta
info@BRPOnesta.com
www.backofficedepot.com
About Thomas Tramaglini

Are you a small business owner and looking for a grant to support your business?

Our team at BRP Onesta continually looks for and list grants that are available for small businesses on our website.

1) Subscribe to our Blog to keep informed and receive updates regularly.

2) Contact our team if you need assistance with your grant application.

Check our list out now.

Dr. Thomas Tramaglini is the Managing Director for BRP Onesta, an organization that that supports small businesses. BRP Onesta offers a host of important and affordable solutions that small business owners tend to not have time to do themselves, the team at BRP Onesta can help small businesses grow infinitely. Although located in on the famous Jersey shore, BRP Onesta serves clients in all 50 states, Puerto Rico, Mexico and Canada.

What SBA loan should I apply for?

Although small business owners are interested in applying for an SBA loan, routinely they do not know where to start? In this article, we describe the different types of SBA loans and offer a list of lenders who directly fund SBA loans.

By Thomas Tramaglini, Managing Director at BRP Onesta
info@BRPOnesta.com
www.backofficedepot.com
www.thomastramaglini.com
About Thomas Tramaglini

SBA Loans – What type is best for you?

SBA loans have grown in popularity, especially since the pandemic. The number of small businesses who received funding from popular programs such as the Payroll Protection Program and the Economic Injury Disaster Loan, a previous analysis we did suggests that nearly 1 in 2 business owners have received funding from an SBA product.

However, don’t be fooled! Just because you received an EIDL or PPP loan does not mean you will qualify for a traditional SBA loan.

In fact, in 2021 the SBA reported that there were 32 million small businesses in the United States and only about 12,000 received an SBA 7(a) loan. So, about 0.038% of small businesses in the country did not receive an SBA loan. Since only about 12,000 SBA loans (7(a)) were doled out in 2021 it would suggest that banks are not so motivated to lend to small businesses.

Because this number is so low many small business owners choose to borrow using online or alternative lending options.

If you are a small business owner and you want loan options that are similar to an SBA but without the barriers of SBA, contact our team of advisors now.

Yet, if you are going to apply for an SBA loan, you should know what you are applying for.

Here are different SBA loan products which small business owners can apply for:

PPP and EIDL

Before I get into the other SBA loans, at least 5 times a day we are asked by small business owners if they can apply for the EIDL or if there is another round of PPP coming.

Currently, EIDL is still an active program. However, the date for new applications ended on December 31, 2021, and the SBA is only funding those who applied before that date. The majority of the EIDL applications being considered at this time are those who were declined originally and are in the reconsideration process.

If you are a small business owner and had your EIDL application declined: We have a high success rate of working with small business owners getting their declined EIDL applications funded – contact us and one of our advisors will go over your file.

The PPP program had 2 draws and small business owners would love to get another draw of forgivable funds. To date, there are no plans on providing another draw of PPP funds.

Sign Up for Our Secret Sauce Newsletter for Small Businesses and receive the link to 1 Tradeline Who Gives Business Credit for Free Click Here

The difference between EIDL and SBA loans

The major difference between EIDL and other SBA loans is that the EIDL directly comes from the US Department of Treasury and the other loans come from approved lenders. True SBA loans are loans from approved lenders guaranteed up to a certain amount (program dependent) by the federal government.

SBA 7(a) and Express Loan (same guidelines)

SBA 7(a) loans are the most common loan program offered by SBA. The SBA suggests that the 7(a) can be used for business real estate purchases, as well as short- and long-term working capital, refinancing current business debt, as well as the purchase of furniture, fixtures, and supplies. The maximum loan amount for a 7(a) loan is $5 million. Key eligibility factors are based on what the business does to receive its income, its credit history, and where the business operates. SBA 7(a) loans are not forgivable.

SBA 504

The Certified Development Companies/504 Loan Program provides long-term, fixed rate financing of up to $5 million for major fixed assets that promote business growth and job creation. 504 loans are available through SBA’s community-based partners who regulate nonprofits and promote economic development within their communities. CDCs are certified and regulated by the SBA. SBA 504 are repayable over 10 – 20 years and pegged to an increment above the current market rates. SBA 504 loans are not forgivable.

Microloans

The SBA microloan program provides loans up to $50,000 to help small businesses and certain not-for-profit childcare centers start up and expand. The average microloan is about $13,000. SBA provides funds to specially designated intermediary lenders, which are nonprofit community-based organizations with experience in lending as well as management and technical assistance. These intermediaries administer the Microloan program for eligible borrowers.

What are the most prevalent banks for SBA loans?

The US Small Business Administration keeps a list of their 100 most active SBA lenders on their website. So, if you are going to apply for an SBA loan, you need to know who to apply for the loan from. While this list changes frequently, here is a list of SBA’s most active 100 banks.

Not all banks are created equal

In 2021, 1,189 lenders funded SBA 7(a) loans. We work with over 100 SBA banks, and it is important that one knows what these banks are looking for. One does not simply just call the bank and apply for an SBA loan. Lenders can be particular in who they want to fund.

  • Some of the SBA lenders prefer that you do your banking with their bank
  • Some SBA lenders prefer to work with certain industries
  • Some SBA lenders only serve a region or a small area

Almost always better to use an Agent for an SBA loan

Using a specialist may be one of the best ways to attain an SBA loan. Specialists or “Agents” understand what goes into an SBA loan application. Agents like BRP Onesta specialize in both knowing what is needed for approval for an SBA loan and can help a small business owner prepare what is needed for the bank. In the end, small business owners will save a lot of time and money using an agent. If you have any questions or would like to apply for an SBA loan, we will help you.

Do you want to apply for an SBA loan? Do you think you are ready to qualify now? Do you want to find out if you can get pre-approved for an SBA loan before you apply?

If you answered YES to any of these questions, please contact our team at any time for a free, no-obligation phone consultation with one of our specialists. We will set up a time with you and go over what you are looking for, what we think you can qualify for, and what we can do to get you to the finish line.

We also have a host of small business funding opportunities, from equipment loans to small business grants which we keep updated each week (click here)

References

SBA EIDL Loan Data: https://www.sba.gov/sites/default/files/2022-02/COVID-19%20EIDL%20TA%20STA_02032022_Public-508.pdf

SBA PPP Loan Data: https://www.sba.gov/funding-programs/loans/covid-19-relief-options/paycheck-protection-program/ppp-data

SBA Office of Advocacy Data: https://cdn.advocacy.sba.gov/wp-content/uploads/2020/11/05122043/Small-Business-FAQ-2020.pdf

SBA Loan Descriptions: https://www.sba.gov/funding-programs/loans

Dr. Thomas Tramaglini is the Managing Director for BRP Onesta, a company that supports small businesses. By offering a host of important and affordable services that small business owners tend to not have time to do themselves, the team at BRP Onesta can help small businesses grow infinitely. Although located in on the famous Jersey shore, BRP Onesta serves clients in all 50 states, Puerto Rico, Mexico and Canada.

Are SBA Loans Forgivable?

In this article, we tackle SBA loan forgiveness. We identify what SBA loans are forgivable and how to get those SBA loans forgiven. This article is part of our series, SBA Loans for Small Business Owners: The Complete Beginners Guide, we share our experiences and expertise to answer questions that small business owners have about SBA loans.

By Thomas Tramaglini, Managing Director at BRP Onesta
info@BRPOnesta.com
www.backofficedepot.com
thomastramaglini.com

Business Owners Confused

Are you a small business owner that has an SBA loan? Do you receive an SBA loan in recent years? Is your loan forgivable? Are parts of your loan forgivable?

Business owners are confused and continue to be confused.

According to the SBA, there are over 31 million small businesses in the United States. Using SBA data, of the 31 million+ small businesses, over the last 5 years approximately 12 million loans have some sort of SBA tag to it. So, about approximately 1 in 3 small business owners have recently had some sort of SBA small business loan. We believe the percentage could be closer to 1 in 2 with the number of small businesses that the SBA Office of Advocacy also suggests that many businesses have no employees, or they may be dormant.

Since so many small business owners have a loan associated with the SBA in some way, we frequently are asked if they must pay back their SBA loan. As part of our blog series SBA Loans for Small Business Owners: The Complete Beginners Guide, we provide some simple answers below.

Sign Up for Our Secret Sauce Newsletter for Small Businesses and receive the link to 1 Tradeline Who Gives Business Credit for Free Click Here

Access to SBA Loans Blew Up in 2020

Before 2020, I am not sure if anyone had ever seen an SBA loan be forgiven. In fact, according to the Small Business Credit Survey suggests that before the Pandemic, only about 1 in 5 small businesses were actually able to secure an SBA loan of some type.

So, we know that since April 2020, the number of small business owners having some sort of associated SBA loan is 30%-50% higher.

Mass Confusion Prevalent

Regardless of your educational level, time in business or the size of SBA loan, it was and still is clear that small business owners are confused about what is forgivable and what is not. A recent report in the Wall Street Journal suggests that the majority of small business owners continue to be confused about SBA loans.

What is considered “Loan Forgiveness?”

The advisors at Brothers Road Partners LTD (BRP Onesta) are asked about Loan Forgiveness every day. Simply, Loan Forgiveness means that you do not have to pay back the loan.

With this definition, we still live by one tenet set by Managing Director, Thomas Tramaglini: Until the loan is forgivable, the business owner is responsible. This is good advice considering the confusion surrounding SBA loans.

What SBA Loans are Forgivable?

Below is a list of SBA loans (and we included advances/grants) we have helped our clients get or manage and whether or not the loans are forgivable:

Payroll Protection Program (PPP)

PPP loans were designed to provide an incentive for small businesses to keep workers on the payroll (List of PPP allowable uses). Like other SBA loans, PPP loans were underwritten, funded and forgiven by approved SBA lenders. So far, there have been 2 rounds of PPP available to small business owners. PPP loans are forgivable if the borrower spent the funds and can provide proof that the funds were used for the intended purposes. To date, about 87% of the PPP loans have been forgiven.

Getting your PPP loan forgiven is not hard as long as you used the money for what it was intended for. The SBA has made it easier to apply for forgiveness with the website https://directforgiveness.sba.gov/requests/borrower/login/?next=/ Depending on if the bank the PPP loan was funded from opts to use this portal, this site is easy to apply for the PPP loan through. Otherwise, each bank either directly has their own process (PNC Bank, Fountainhead) or may use a 3rd party for forgiveness (Scratch).

Verdict: Forgivable

Is your PPP loan(s) still not forgiven? Contact us today – we can help.

Click here to find out here whether your PPP loan or loans are forgiven.

Economic Disaster Injury Loans (EIDL)

The EIDL loan program was extended to Pandemic relief under the CARES and American Recovery Acts. EIDL loans are loans directly provided to small business owners by the US Department of Treasury. After the initial EIDL loans were provided for 6 months of working capital, the loan was extended to those who qualified for up to 24 months. The terms of this loan are 2.75% (non-profit) to 3.75% (for-profit) and go out to 30 years. This direct long-term loan program from the SBA is not forgivable.

List of EIDL allowable uses

Verdict: Not Forgivable

Do you need help with EIDL Reconsideration? Contact us today – we can help? We have helped numerous clients with their EIDL loans and loan expansion.

Misuses of EIDL and PPP Loans: If you are curious about some of the misuses of PPP and EIDL, I wrote a couple of articles on the topic:

The Front-Line Zeroes of the Pandemic: Ranking our top 15 EIDL/PPP SM Business Owners Accused or Convicted of EIDL/PPP Fraud

Fake 940/941s, More Lamborghinis, Rolexes and Real Estate, Oh My. More Fraud from PPP/EIDL

EIDL Advance | EIDL Targeted Advance | EIDL Supplemental Targeted Advance

EIDL Advances has been rolled out in a host of different ways. That is, the government has found different ways to provide funds set aside for small businesses. From $1,000 per employee up to $10,000 for any small business that qualified to more targeted small businesses that mainly drove funds to lower income areas generally, EIDL Advance programs have been intended to not have small business owners pay back funds. It is important to note that some EIDL Advances were rolled into PPP loans however, SBA guidance is all over the place on that topic, so our disposition is that if you received an EIDL Advance, you likely do not have to pay the funds back.

Verdict: Forgivable

SBA 7(a) and Express Loan (same guidelines)

SBA 7(a) loans are the most common loan program offered by SBA. The SBA suggests that the 7(a) can be used for business real estate purchases, as well as short- and long-term working capital, refinancing current business debt, as well as the purchase of furniture, fixtures and supplies. The maximum loan amount for a 7(a) loan is $5 million. Key eligibility factors are based on what the business does to receive its income, its credit history, and where the business operates. SBA 7(a) loans are not forgivable.

Verdict: Not Forgivable

SBA 504

The Certified Development Companies/504 Loan Program provides long-term, fixed rate financing of up to $5 million for major fixed assets that promote business growth and job creation. 504 loans are available through SBA’s community-based partners who regulate nonprofits and promote economic development within their communities. CDCs are certified and regulated by the SBA. SBA 504 are repayable over 10 – 20 years and pegged to an increment above the current market rates. SBA 504 loans are not forgivable.

Verdict: Not Forgivable

Microloans

The SBA microloan program provides loans up to $50,000 to help small businesses and certain not-for-profit childcare centers start up and expand. The average microloan is about $13,000. SBA provides funds to specially designated intermediary lenders, which are nonprofit community-based organizations with experience in lending as well as management and technical assistance. These intermediaries administer the Microloan program for eligible borrowers.

Verdict: Not Forgivable

Implications

Over the past two years our team at BRP Onesta has been hit with many questions regarding whether or not one has to pay back their SBA loans. In this article, I have provided an overview of different SBA loans and whether they are forgivable.

If you have any questions, you can contact us or reach out directly to SBA.

Do you want to apply for an SBA loan? Do you think you are ready to qualify now? Do you want to find out if you can get pre-approved for an SBA loan before you apply?

If you answered YES to any of these questions, please contact our team at any time for a free, no-obligation phone consultation with one of our specialists. We will set up a time with you and go over what you are looking for, what we think you can qualify for, and what we can do to get you to the finish line.

We also have a host of small business funding opportunities, from equipment loans to small business grants which we keep updated each week (click here)

References

SBA EIDL Loan Data: https://www.sba.gov/sites/default/files/2022-02/COVID-19%20EIDL%20TA%20STA_02032022_Public-508.pdf

SBA PPP Loan Data: https://www.sba.gov/funding-programs/loans/covid-19-relief-options/paycheck-protection-program/ppp-data

SBA Office of Advocacy Data: https://cdn.advocacy.sba.gov/wp-content/uploads/2020/11/05122043/Small-Business-FAQ-2020.pdf

SBA Loan Descriptions: https://www.sba.gov/funding-programs/loans

Dr. Thomas Tramaglini is the Managing Director for BRP Onesta, a company that supports small businesses. By offering a host of important and affordable services that small business owners tend to not have time to do themselves, the team at BRP Onesta can help small businesses grow infinitely. Although located in on the famous Jersey shore, BRP Onesta serves clients in all 50 states, Puerto Rico, Mexico and Canada.

SBA Loans for Small Business Owners: The Complete Beginners Guide

Research over the last 10 years suggests that about 1 in 5 small business owners qualify for SBA loans. Yet, when it comes to loans, small business owners are primarily interested in an SBA loan. In a series of blogs, we explore SBA loans and what small business owners can do to get qualified.

By Thomas W. Tramaglini, Managing Director at BRP Onesta
info@BRPOnesta.com
www.backofficedepot.com

Sign Up for Our Secret Sauce Newsletter and receive 1 Tradeline for Business Credit for Free Click Here

Introduction

For years, BRP Onesta has originated millions of dollars in SBA loans for small businesses. Clients and prospects almost always request SBA loans when seeking funding for their business. Yet, while the small business owners we interact with want an SBA loan, the majority of our interactions yield that they know little about SBA loans.

Why are SBA loans so sexy?

What is so attractive about an SBA loan? Two reasons are that they carry low interest rates and have long terms. Small business owners can use loan proceeds for a host of purposes (equipment, machinery, buildings or working capital). So, when a loan has some of the attributes I listed, of course SBA loans would be the first choice.

What is an SBA Loan?

Although I will spend some time to do a bit deeper of a dive on the subject in future blog posts, it is important to describe what an SBA loan is. Also, for the purposes of this blog I will NOT include Economic Injury Disaster Loans (EIDL) or Payroll Protection Program (PPP) loans in the context of my description. An SBA loan is a loan (from an approved SBA lender) which the majority of the loan is guaranteed by the U.S. Small Business Administration. Guidelines for these lenders to use for SBA loan programs are set by the SBA and once an SBA loan is approved by the bank, it is sent to the SBA for their review and approval.

See Different Loan Opportunities for Small Business Owners to Take Advantage Of

Most Small Business Owners Do Not Qualify for SBA Loans

Indeed, SBA loans are sexy to many small business owners. Yet, a small number of small business owners get funded with an SBA loan. One dataset and report that I love to comb through comes from Fed Small Business, a workgroup coming from the 12 Federal Reserve Banks and small business partners (about) (Small Business Credit Survey). Each year, the group conducts a survey of small business owners from all 50 states. Questions vary from borrowing to organizational health. Results provide a generalizable set of data for researchers to paint a picture of the status of small businesses. In laypersons terms, their survey is a measuring stick of that describes different aspects of small business health in the United States with approximately 90% accuracy.

In the last SBCS survey that provided an accurate description of small businesses and SBA loans, around 1 in 5 businesses were able to secure SBA loans as compared to other sources of borrowing capital. Considering how sexy SBA loans are to small business owners it is disheartening and eye-opening that such a low number of small business owners actually can secure such funding.

We Curate Small Business Grant Opportunities Here

Small Business Owners Need to Know More About SBA Loans

Clearly, there is a disconnect of some type considering the high percentage of small business owners who tell us they want SBA loans but in reality, qualify for one. So, we decided to write a series of small business blog posts that address this gap. We aim at better educating small business owners and provide ways that small business owners can prepare for applying for an SBA loan. The focus will be to answer many of the questions that we are asked each day at BRP Onesta.

Some of the topics that we will explore will include:

  • What types of SBA loans are there?
  • Are SBA loans forgivable?
  • Where to apply for an SBA loan?
  • How do small businesses qualify for an SBA loan?
  • What is the SBA loan process?
  • What options are there for small business owners who do not qualify for an SBA loan?
  • How can the typical small business owner get pre-approved for an SBA loan and what pitfalls they should avoid?
Is There Hope?

Yes, of course there is hope. Up front, no, all small business owners will not qualify for an SBA loan. However, while only 1 in 5 small businesses seem to be able to qualify for an SBA loan, with support organizations like ours (www.backofficedepot.com), our ratio is much higher. From January 2016 – present, about 62% of our clients were able to qualify for SBA loans after work we did to support their application process and applying at the right bank. The bottom line is that in 2020 the SBA reported that there were 31.7 million small businesses in the United States and there is plenty of funding out there for small businesses to use to grow their brand, their products, services, and their customer base and we want to help small businesses find their way forward with the best possible margins.

Contact Our Team Today To See If You Qualify For An SBA Loan
Do you want to apply for an SBA loan? Do you think you are ready to qualify now? Do you want to find out if you can get pre-approved for an SBA loan before you apply?
If you answered YES to any of these questions, please contact our team at any time for a free, no-obligation phone consultation with one of our specialists. We will set up a time with you and go over what you are looking for, what we think you can qualify for, and what we can do to get you to the finish line.
We also have a host of small business funding opportunities, from equipment loans to small business grants which we keep updated each week (click here)

Dr. Thomas W. Tramaglini is the Managing Director for BRP Onesta, a company that supports small businesses. By offering a host of important and affordable services that small business owners tend to not have time to do themselves, the team at BRP Onesta can help small businesses grow. BRP Onesta serves clients in all 50 states, Puerto Rico, Mexico and Canada.

Spot Checks: No-Nos and Uh-Ohs of EIDL.

Tales from recent spot checks SBA performed on our clients.

By Thomas W. Tramaglini, BRP Onesta

info@BRPOnesta.com

www.backofficedepot.com

Recently, two of our clients’ EIDL applications for additional funding initiated a spot check by the SBA.  The SBA reviewed how they used their EIDL proceeds.  We take their experiences and use previous survey data from our clients to write this article underscoring the importance of using EIDL in compliance with code.  Implications are provided at the end of this article.

SBA can and (actually) does check on how small business owners used proceeds

When the COVID-19 Pandemic hit, immediately small business owners began to seek relief.  In several bills passed by Congress and signed into law by former President Trump and current President Biden, billions of dollars went to small business owners who needed help.  According to the SBA, the Economic Injury Disaster Loan program disbursed over $88 Billion dollars through November 2021 through EIDL.  There were also grants provided to small businesses under the same program guidelines.

With so much money being loaned out to small business owners, there are cases, albeit rare where the SBA will either spot check or audit how proceeds are used.

A Wide Range of How Small Business Owners Spent or Intend to Spend EIDL Proceeds

As helpful as some of those funds were to many small businesses, the allowable uses of small business loan funds were confusing to many.  For instance, in our survey of small business owners, nearly 70% (69.7%) of small business owners identified that they were unclear at that start of the program of what funds were to be used for and then in a subsequent question, 46.2% of the business owners in the same survey said that they would like to receive expansion funds provided by SBA for expansion.  Amidst the confusion shared by so many small business owners, small businesses owners are still responsible for using their funds adequately or face possible implications of misuse of funds as laid out in their SBA EIDL Notes.

Purpose of EIDL Proceeds and How Small Business Owners Used or Will Use EIDL

The SBA describes the EIDL program1 purpose: “The purpose of EIDL is to provide financial assistance for small businesses to meet financial obligations and operating expenses that could have been met had the disaster not occurred.”  In our survey, small business owners said they used or would be using the EIDL funds for the following:

New Equipment – 29.1%

Refinance or Pay Off Debt – 54.2%

Payroll – 67.1%

Working Capital – 81.2%

New Hires – 39.6%

Operating Expenses (rent, utilities) – 24.7%

Expansion – 46.2%

Other Uses – 80.4%

As you can see, the data suggests that small business owners used EIDL funds in various ways. 

Significantly, this survey was completed before the SBA revised allowable uses on September 21, 2021, to include paying off previous debt (“Working capital to make regular payments for operating expenses, including payroll, rent/mortgage, utilities, and other ordinary business expenses, and to pay business debt incurred at any time (past present or future”).

EIDL Spot Checks

Recently, two of our clients were spot checked by the SBA for their EIDLs.  Both were spot checked during their application review for EIDL expansion.  The SBA asked the following to be submitted:

  • How first time EIDL proceeds were spent.
  • Backup/receipts/bank statements demonstrating what proceeds were used for.
  • How the first time EIDL funds were not sufficient for the business owners and to show cause for needing additional funds.
  • One of the two business owners were asked to provide additional records, including financials.

It is important to note that both of our clients were not fully prepared for the spot check.  While both clients have our company doing their books and have clean books, many business owners do not keep or have someone keeping their books.  On the contrary, any taxpayer would want to make sure that any small business who was provided Relief Funding would want the proceeds to be used for an appropriate purpose. 

One area on the horizon for small business owners to take note: Taxes should match your records.

One note that needs mention but is not the subject of this article is that SBA in their spot checks asked for transcripts of FY 2019 Taxes.  The implications of doing so are important.  That is, numbers on original applications should match the same numbers from the 2019 IRS tax forms which are appropriate for the type of entity type.  From our experiences, many of our clients were denied additional funds because their tax amounts in areas such as Revenue and Cost of Goods Sold were not in alignment.  Furthermore, if one is to defend themselves on how they expended their EIDL proceeds, it is important to make sure that those expenditures match what is on the FY 2020 or FY 2021 taxes submitted.  Just to ponder extrapolation of discrepancies between tax forms and EIDL forms is unsettling.  The bottom line is that small business owners should be conscious of this occurrence and the implications, inferred or not.

What if SBA spot checks or audits my EIDL loan?

If you are spot checked by the SBA or more importantly, audited, you should be prepared to provide backup of how you spent the funds.  Experts suggest that you keep business records for up to six years after your loan was received however some states have specific laws that govern business records that some business owners should be aware of.

Regardless, if you have an EIDL loan you should be ready for an EIDL audit.  Specifically, you should keep a record of the EIDL deposit, payments, and keep all receipts of expenditures that you utilized using the funds. 

What can I use, or should I have used my EIDL loans for?

For those who received EIDL proceeds, you probably misused EIDL proceeds if you used the funds to expand your operations.  Remember, EIDL proceeds were provided to help you maintain your operations during the Pandemic.  As previously stated, some of these costs include payroll, benefit costs for employees, rent, utilities, fixed debt payments, repairs and replacing inventory.  Any working capital would need to be verifiable and align to EIDL appropriate uses.

EIDL Restrictions

If you used your EIDL funds to expand or do new things for your business, you probably misused proceeds.  Some of the other misuses include refinancing new debt not incurred during the period of the proceeds, buying new capital assets such as new vehicles or new buildings, dividends or bonuses, owner disbursements, repayment of stockholder or principal loans, or paying a direct federal debt from the IRS (unless exempted from the September 8th update). 

So what?

Well, if you received EIDL funds or applied for more funds, expect a check in or an audit.  These occurrences are rare, but like our two clients who were not prepared, you should be prepared.  That is, if you used EIDL funds to expand your business you probably misused the funds.  On the surface, the Pandemic funds were there to provide a bridge.  In many cases the funds were totally used the right way.  However, if you were one of those who did not use the funds adequately, regardless of if you were confused or not you will likely be liable for consequences.  In each note from the SBA, the consequences are laid out and can include a host of different options.

https://www.sba.gov/article/2021/nov/24/fact-sheet-us-small-business-administration-delivering-support-americas-small-businesses-helping

Dr. Thomas Tramaglini is the Managing Director for BRP Onesta, a company that supports small businesses. By offering a host of important and affordable services that small business owners tend to not have time to do themselves, the team at BRP Onesta can help small businesses grow infinitely. Although located in on the famous Jersey shore, BRP Onesta serves clients in all 50 states, Puerto Rico, Mexico and Canada.

Are You on The Lending Blacklist? You might be surprised.

Lenders are getting smarter. A few tools that online and MCA lenders use to gauge fundability.

By Thomas Tramaglini, BRP Onesta
info@BRPOnesta.com
www.backofficedepot.com

Our company routinely works with small business owners to stabilize or grow their businesses. One important step that small business owners require our assistance is with the attainment of capital for their businesses. In a previous post, I discussed some of the statistics of how many small businesses are looking to borrow money for their business. Whether for consolidation of debt, expansion, real estate, or equipment, underwriting of any loan or advance, we generally are asked by small business owners what the lenders are looking for in order to get an approval.

Through professional conversations with brokers of merchant cash advance and online loans in the past, brokers seemed to have lenders who they suggested did not thoroughly vet client applications ultimately providing funding to small business owners who probably should not have been funded. While this has not been our experience, clearly the shenanigans of the merchant cash advance and online loans have been in existence for some time.

So, we decided to explore some ways that lenders vet possible lenders in the online and alternative lending space.

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In no way can one blog (or probably a book) do any justice to go through the art (and it is an art) of how banks or lenders go about their approval processes. We did however, find three tools that online lenders (i.e., OnDeck, PayPal) and alternative lenders (MCA, equipment) favor in vetting their applications.

What are the lenders looking for?

Simply put, there are many different variables that go into an approval. Yet, regardless of how strong a small business’ financials or bank statements look, one attribute that will kill any deal is whether a business has ever had issues paying back capital (defaults, slow pays, Judgements, fraud, etc.).

Three Tools that Lenders Use Which Unofficially Serve as A Blacklist

Clearinghouse Data

Online and alternative lenders use different clearinghouses who curate a multitude of data. From publicly reported data to credit records, these datasets provide a robust amount of information about potential borrowers and businesses. There are a few clearinghouses our there (others like Chex Systems) but here are a few that we know are commonly used.

LexisNexis

LexisNexis provides business research and risk management services to various industries. These include lenders, insurance companies, vendors and more. These companies use LexisNexis to verify personal and business credit history (PayNet does this too), public records (PACER), and application history. And they use LexisNexis to assess risk on applicants. Inaccurate information, data which doesn’t match your application, or negative items in your LexisNexis report can have a drastic negative impact on your business. This is especially true during the application process.

Business owners can request a copy of their LexisNexis report and decrease the probability of surprises during the application process. Click Here to Request Your Report

DataMerch.com

Founded in 2015, DataMerch.com is a popular tool for online and alternative lenders. Lenders who belong to DataMerch.com upload their lending experiences ultimately painting a picture of many small businesses who have taken loans and merchant cash advances with their companies. Recently, DataMerch.com reported that they now have over 50,000 records on file.

Why is this important? DataMerch.com provides lenders a robust database so they can better inform their approval process. These records provide categorical data such as suspicious activity, slow payers, split payers, and COVID-19 Hardships. Lenders can also find out if small businesses have taken on recent or defaulted funding that might not appear in a business’ bank statements. Regardless, small business owners should know that lenders are not stupid and if you have had issues with your MCAs or loans, you will probably have some issues taking another loan or MCA.

NYS Court System

One place that online and alternative lenders check for issues with loans, MCAs or just other issues which might be a red flag for borrowers is the New York State Unified Court System (New York State Courts Electronic Filing). This website yields a host of legal cases from New York State but importantly, most alternative lenders are in New York so anytime there is a default, and a lender files a Judgement, that Judgement is listed.

If you are a small business owner and default on a loan or merchant cash advance and you are served with a Judgement, it will likely be listed here. The good news is that you can satisfy your Judgement which will be listed on the site after doing so. The bad news is that once you have a Judgement listed on this website it becomes very difficult to ever get funding for your business ever again. In some ways, have a Judgement posted on this site can be worst than a bankruptcy.

Would you like to see if you have anything listed? https://iapps.courts.state.ny.us/ is the link that used to access the files.

So what?

I wrote this Blog because when our clients get declined for loans or merchant cash advances, they tend to ask us why? Although lenders do not share much information with us, we do know that lenders are getting smarter about who they provide funds to. That is, lenders want to (and should) know that someone requesting to borrow funds will pay back their debt.

Over the years, we have seen just about everything small business owners have done to get funded. Specifically, we could write a book about some of the shenanigans some business owners who have negative payment histories have pulled to get funded.

When our clients or small business owners get declined for loans or merchant cash advances and ask why? Notwithstanding that many times the clients do not tell us they had issues with paying a loan or merchant cash advance, they should understand there are tools that lenders use, and it is very possible they are blacklisted.

So, if you are a small business owner who has had issues with paying back a lender, lenders are getting more informed, and they should be aware of this. Lenders are not stupid and if you had issues paying back a loan or merchant cash advance, rightfully so you will probably not be able to access more capital for your business. In fact, you will probably not find an easy road finding capital for another business as well.

Read Other Blog Posts at www.backofficedepot.com/blog or www.tomtramaglini.com

Dr. Thomas W. Tramaglini is the Managing Director for BRP Onesta, a company that supports small businesses. By offering a host of important and affordable services that small business owners tend to not have time to do themselves, the team at BRP Onesta can help small businesses grow infinitely. Although located in on the famous Jersey shore, BRP Onesta serves clients in all 50 states, Puerto Rico, Mexico and Canada.

Small Business Grant Opportunities Updated.

By Thomas W. Tramaglini, Managing Director at BRP Onesta

info@BRPOnesta.com
thomastramaglini.com
www.backofficedepot.com

Are you a small business owner and looking for a grant to support your business?

Our team at BRP Onesta continually looks for and list grants that are available for small businesses on our website. We also assist small business owners who are in pursuit of grants just need help.

Check our list out.

Dr. Thomas Tramaglini is the Managing Director for BRP Onesta, a company that supports small businesses. By offering a host of important and affordable services that small business owners tend to not have time to do themselves, the team at BRP Onesta can help small businesses grow infinitely. Although located in on the famous Jersey shore, BRP Onesta serves clients in all 50 states, Puerto Rico, Mexico and Canada.