small business financing

Small Business Financing For Those Who Did & Didn’t Qualify for a PPP Loan

The current economic environment poses unique challenges to the small businesses financing industry because banks aren’t lending as much or as often. It’s harder to obtain other types of small business financing that might have been available before the pandemic. Some businesses have been able to take advantage of Paycheck Protection Program (PPP) loans for funding, but in many cases, this money must be paid back. Even then, it’s not always enough to cover necessary expenses.

The good news is that there are still viable options for small businesses to solve cash flow issues, whether or not you were able to access PPP funding.

How PPP Loans Work for Small Businesses

The Paycheck Protection Program was created by the US Small Business Administration (SBA) to provide “a direct incentive for small businesses to keep their workers on the payroll.” Though PPP funding is technically a loan, these loans can be forgiven either partially or in full, as long as the business uses the funds for eligible expenses and adheres to rules about payroll and employee numbers.

PPP loans have offered crucial relief for many businesses, but not all businesses will qualify for them. Those that do qualify may have to wait months before receiving funding from PPP providers, and even then, that funding may not be able to cover all related business expenses.

In cases like these, businesses may be able to use invoice factoring to offer a steady, reliable source of income.

What Is Invoice Factoring?

In the simplest terms, factoring is a way for businesses to obtain immediate capital based on future income.

A factoring company buys your invoices or work orders, minus a factoring fee. The factoring company takes on the responsibility of collecting debts, and you get your money right when you need it. It’s a way to get an injection of cash or working capital quickly and easily, without going into debt or waiting for clients to pay in full.

Unlike a loan, you do not need to repay the funds received from factoring. You can even leverage invoice factoring if you get a PPP loan, helping you adhere to PPP loan rules and giving you the flexibility you need to pay it back.

Factoring for Businesses with PPP Loans

Because PPP loan amounts are based on 2.5 times the company’s 2019 average monthly payroll cost, this funding alone may not be enough to keep many small businesses afloat.

PPP loans also require business owners to spend a certain percentage of their funding on employee salaries. However, the majority of business budgets consist of day-to-day operational expenses like utilities and rent, not just payroll.

For businesses that received PPP loans, invoice factoring may be a way to meet financial obligations that government loans can’t cover. It can also be a way to ensure that PPP loan rules are being met without falling behind on other funding needs.

For example, if your business needs new equipment or rent is due, it can be tempting to dip into PPP funding to cover these expenses. To be eligible for PPP loan forgiveness, however, business owners are required to spend at least 60% of funding on payroll or salaries.

Invoice factoring can allow you to keep up with these crucial, non-payroll expenses without losing eligibility for loan forgiveness. This can help keep your business stable while saving you money down the line.

Factoring for Businesses Without PPP Loans

If you didn’t apply for or don’t qualify for PPP loans, factoring may be able to help your business maintain a steady cash flow in the short term and long term.

Factoring may be most immediately useful for maintaining income during unpredictable market conditions, but it can also help your business recover more easily in its aftermath. Even when businesses are allowed to fully reopen, many small business owners believe it will take three months to a year before a return to “normal.”

Additionally, it’s not just businesses dealing with economic uncertainty—it’s your clients, too. An economic downturn means that clients may struggle to pay invoices on time for the foreseeable future, further destabilizing income for small businesses.

For businesses in need of added stability, invoice factoring can be a useful alternative to PPP loans. Factoring can help mitigate the problem of unpaid invoices, giving your business a stronger foundation into the future.

Is Factoring Right for Your Business?

Whether your business was able to benefit from the Paycheck Protection Program or not, invoice factoring may be a way to help your company keep cash flowing and pay for important business expenses.

Think invoice factoring might be a good small business finance solution for you? Reach out to Triumph today to learn how we can help you leverage the power of your unpaid accounts receivable—and sidestep complicated, expensive loans.