3 Ways Your Construction Company can use PPP Loans to Grow
Paycheck Protection Program (PPP) loans provided to small and medium businesses at the onset of the pandemic provided some construction companies with a way to stay afloat. However, the details surrounding the ways these loans can be used and how to obtain forgiveness can be confusing. While PPP loans were designed to put money directly into the pockets of employees, there are other ways portions of the funds can be spent. Learn about the ways PPP loans can be used to assist company growth and still be applicable for loan forgiveness.
PPP Loans Purpose and Allowed Uses
PPP loans were administered by the Small Business Association (SBA) to keep workers on the payroll during the pandemic. When businesses follow the required terms, they can be eligible for total loan forgiveness, eliminating the requirements to pay back the funds. PPP loans are available until May 31, 2021, and some businesses are eligible for a second loan after funds from the first loan are exhausted. On March 11, 2021, President Biden signed the American Rescue Plan Act into law. This bill included some important changes to the PPP program, allowing companies previously not eligible for PPP loans to receive much-needed funds and eliminating the worries that forgiven loans would be subject to tax penalties. Additional changes provided companies with new ways to use PPP loans and still qualify for forgiveness. To qualify for complete loan forgiveness PPP borrowers are required to spend the funds as follows.
60% for Payroll Costs
In order to qualify for 100% forgiveness, companies are required to spend 60% of the loan on payroll costs and the other 40% can go to specific non-payroll-related costs. While you don't have to hit the exact mark for those percentages, it's essential to spend at least 60% on payroll costs. However, payroll costs aren't limited to direct employee salary costs.
Payroll costs are limited to company staff who receive W-2s each year. This is where it can get complicated in the construction industry since it eliminates the majority of workers (contractors and subs) that receive payment when the company is operating at full capacity. For many small to medium construction companies, meeting the 60% threshold would be difficult if the funds were limited to the salaries of W-2 receiving staff. Luckily, payroll costs can be expanded to include related costs like health insurance, retirement funds, 401k funds, dental insurance, and other typical benefits. Additional uses can include bonuses or tips and state and local taxes that are based on payroll.
40% for Additional Expenses
If you don't exhaust the funds of your PPP loan on payroll costs, 40% of the loan can be used on specific non-payroll costs. This may include costs like rent, utilities, or mortgage interest on an existing loan. With the second round of PPP loans came new expenses eligible for forgiveness under the PPP loan program. This includes operations expenditures (including software), supplier costs, COVID-19 protection gear, and building repair needed due to events that occurred during 2020.
3 Ways you Can Use PPP Loans to Grow Your Construction Company
Since the funds from PPP loans aren't expressly required for salary payments, construction companies are more likely to benefit from PPP loans with the ability to qualify for complete forgiveness. Instead of simply offering companies a way to stay afloat, small construction companies can actually use PPP loan funds to grow. Here are three ways you can use your PPP loan to promote company growth.
Invest in Software
The construction industry is notorious for lagging behind other industries when it comes to the use of technology. In the past, software used in other business sectors was impractical for use by construction companies, and industry experts viewed the use of tech as a futile attempt to avoid physical work. Today, technology has evolved and software designed for the construction industry can streamline complex processes and improve billing issues that have long plagued the industry.
A robust construction software solution goes way beyond billing to streamline many of the complex documentation processes used in the field. The software can improve virtual communication, eliminate human errors in manual documentation, automate a variety of processes, and eliminate lost and delayed paperwork. Simply put, construction software can provide construction companies with a customizable billing process to eliminate project and payment delays and streamline the entire documentation chain, saving companies money every year.
Invest in Employees
Due to the complicated nature of billing and payment processes in the construction industry, employee turnover is a common issue. Since payroll costs can be used to contribute to related employee costs, borrowers can use funds to invest in incentives for employees to stay put. Retirement contributions, bonuses, and improved healthcare programs all provide employees with reasons to stay with the company instead of looking for greener pastures. Creating long-term programs that keep existing employees happy helps eliminate employee turnover and increases positive recruitment tactics.
Invest in Recruiting
While the pandemic has created a variety of challenges in the construction industry, recruiting is an area that has long lacked the necessary enthusiasm to attract new employees to the industry. Also, while the construction industry was heavily affected by the pandemic, the return to work as vaccines become more widely available presents unique recruiting opportunities.
The PPP funds were designed to retain existing employees or rehire those who were laid off still, many employees chose not to return to work. When this occurs, companies can use PPP loans to fill empty positions with new employees. Investing in a new employee recruitment plan can provide construction companies with a way to replace employees who chose not to return during the pandemic and entice potential employees to the company in the future.
PPP loans can furnish construction companies with a variety of benefits that would be difficult to implement otherwise. To learn more about the ways construction billing software can help you grow your construction company, get in touch with the software experts at Flashtract. Watch our free demo and have your concerns addressed by a member of our friendly team.