If people don’t have money to buy their needs they borrow it from banks, employees, and other lenders, but most people spend their whole life paying dues. The rest of the people borrow money but rather pay their credits and earn profit through it. These people are able to make use of their borrowed money to make money by investing in profit-yielding businesses.

If you are among those people who want to borrow money to make money then today there are lots of opportunities. There are two kinds of debt; good debt and bad debt. You can use good debt to invest in profitable assets but bad debt is something you use to buy liabilities like cars, consumables, yachts, etc. You can invest from small businesses to large businesses and make a profit out of it.

Here we will discuss a few opportunities to make money with your borrowed money. But before that, we need to understand how to borrow money.

• Can you Borrow Money to Make Money?
• Is it a Good Idea to Borrow Money to Invest?
• Is it Good to Borrow Money to Start a Business?
• How Can u Get Free Money?
• Do Millionaires Have Debt?
• Can I Get Free Money From the Government?
• Why Should I Never Invest Using Borrowed Money?
• What Assets Should I Buy With Borrowed Money?
• Where Can I Borrow Money to Start a Business?
• What Are the Risks of Borrowing Money?
• Who is Not Eligible For a PPP loan?

Can you Borrow Money to Make Money?

The principal method of using debt to invest positively is the use of leverage to exponentially multiply your returns. What is leverage exactly? Leverage is using borrowed money to increase your return on investment. Leverage can allow you to achieve returns that you thought were impossible but at a greater risk of losing your capital.

Read Also: 8 Reasons Why Having Good Credit Is Important

Here are five ways that debt through the use of leverage can make you richer.

1. Margin Investing

Investing on margin allows you to buy a higher dollar amount of stock than you actually have money for. For example, if you had $50,000 in your traditional brokerage account, you could leverage your investment and open a margin account.

A margin account allows you to put up a max of 50% of the purchase price of a stock. You would have $50,000 in cash and an additional $50,000 would be loaned to you from your broker. Your $50,000 investment gives you $100,000 worth of buying power. You could use this money and buy $100,000 worth of stock.

If the stock price appreciates, then you can pay back the loan and pocket the profit. The negative is that if the equity in your account falls below a certain value, your brokerage firm can issue a margin call. If you can’t meet your margin call because you don’t have enough funds, your broker can liquidate your entire position in stock leaving you with losses.

2. Leveraged ETFs

Leveraged exchange traded funds (ETFs) allow investors and traders to amplify their returns by going long or short on a particular index. Fund companies like ProShares offer leveraged ETFs that let investors multiply returns (and losses) between 200% and 300%.

These funds let you invest in specific indexes, bonds, commodities, or sectors. Leveraged ETFs are attractive because of their extraordinary profit potential. During market booms, you can achieve returns with leveraged ETFs that other investors dream about.

The problem is that the same way that leveraged ETFs work for you is how they can work against you. Unless you are great at trading in and out of these funds, leveraged ETFs can magnify losses by wiping out your entire investment in a few days.

3. Hedge Funds

Hedge funds are some of the biggest users of leverage. They are famous for generating abnormal returns by using leverage. Many hedge funds lever up to 10 times their total assets. Billionaire hedge fund managers like John Paulson have used leverage to turn accredited investors into multimillionaires.

However, if the fund manager’s investment thesis is wrong, this can drive a hedge fund out of business and lose the capital of all investors. Hedge funds such as Long-Term Capital Management (LTCM), which needed a bailout, were levered up as much as 30 times their assets.

4. Short Selling

Have you ever watched a financial program on television and heard that it’s time for you to short the market? Short selling is a popular way of betting against particular security by borrowing shares from an investor and selling them in hopes that the shares decline.

Short sellers have made a fortune by properly timing declines in stock prices. The downside to short selling is that losses are unlimited, which means that short sellers can lose much more than the initial investment.

5. Forex Trading

Forex trading allows investors to control large blocks of currencies with a small amount of money. Currency investors can lever up their accounts 100:1. The pros of currency trading are that you can take a small amount of money and turn it into significant sums very quickly.

George Soros is known as the “man who broke the Bank of England” netting $1 billion by betting against the pound. Conversely, currency trading has the potential to clean out a trader’s account in a matter of minutes.

Is it a Good Idea to Borrow Money to Invest?

The only time it makes sense to borrow money for an investment—known in financial lingo as “invest a loan”—is when the return on investment of the loan is high and the risk level of the investment is low. It is inadvisable for an investor to invest a loan in a risky vehicle, like the stock market or derivatives.

Also, if an investor takes out a loan it does not make sense to place the money in an investment that will mature after the loan is due. It is also important that the investor makes sure that the return on investment is greater than the cost of the loan.

Certificates of deposit (CD) and bonds fit into this category, as do investments that will mature in 90 months or less and yield greater than 10% of the cost of the loan.

Having a firm understanding of how and when leverage and margin come into play can also help an investor answer this question.

Is it Good to Borrow Money to Start a Business?

Businesses borrow money from lending institutions including banks, credit unions and savings and loans. For many start-ups, borrowing money ensures the company has enough capital to open the doors and stay afloat until realizing a profit.

Start-up Costs

Borrowed funds help pay business start-up costs. Borrowing money is one of the most common funding sources for small businesses according to the U.S. Small Business Administration. Many new business owners over-extend personal credit to pay start-up expenses.

Borrowing funds to pay start-up costs benefit business owners because they do not have to rely on personal credit, savings and credit cards to fund new business purchases. Borrowed funds eliminate personal financial risks business owners take on when starting a new operation.

Repayment Options

Businesses usually have more flexibility than individuals in repaying loans. This is essential for start-ups, which have limited capital to repay borrowed funds. While most businesses repay loans monthly, new businesses may have the option to structure payments in a way where they are lower in the beginning when the business is less profitable. Once the business realizes a profit, payments gradually increase.

Credit Building

A solid business credit profile is advantageous to start-ups because it builds credibility and the business’s ability to attract new creditors in the future. Business credit is credit that exists solely in the name of the business and is separate from the business owner’s personal credit.

Borrowing money establishes business credit because the lender reports timely payments to credit bureaus that maintain a credit profile of the new business.

Expense Deductions

The Internal Revenue Service allows business owners to deduct reasonable and necessary expenses related to business operations. Business owners may deduct the interest paid on business loans from their federal income tax return. This is advantageous for start-ups that need to reinvest all profits back into the business.

How Can u Get Free Money?

With inflation on the rise and murmurs of a looming recession on the horizon, you might be more than a little anxious about your bank account balances – especially if you already live paycheck to paycheck. According to a 2022 Lending Club report, nearly two-thirds of the population lives paycheck to paycheck.

Here are 10 legitimate ways to get free money online:

Join a Focus Group

If you’re that person who always has an opinion on everything, why not get paid for it? Join a focus group, and you’ll get paid for your thoughts and feedback about an array of products, services or concepts. Keep in mind that though many focus groups are held in person, you can find groups that meet online as well.

Check out 20|20 Panel and User Interviews to get you started. Keep in mind that focus groups are often more involved than other ways to get free money, but the payout (which varies) can be worth it.

Start Some Freelance Work

Even if you already have a 9-to-5, whether at a brick-and-mortar workplace or with the kids as a stay-at-home parent, you could pick up some freelance work in the evenings. Freelancing is great because you can use your particular skill set, whether that’s writing, tutoring, translating or programming, to make some side cash. Check out sites like Upwork, Freelancer.com or Gengo to get started.

Review a Mock Trial

Do you love a good court procedural? Are John Grisham adaptations and “The Lincoln Lawyer” right up your alley? Then reviewing a mock trial online might be a good fit for you. Websites like Ejury.com pay you for watching a mock trial, answering a few questions, and providing comments. The payout per case is $5 to $10.

Earn While You Shop

If you’re shopping for certain products and services, you could snag some discounts and free money by adding some browser extensions like Swagbucks’ SwagButton and CouponCabin’s Sidekick. These extensions send you alerts about discounts, coupons and cash back opportunities while you shop, which can put some dollars back in your pocket while you’re shopping online.

Sign Up for Surveys

If you sign up for online surveys, you can make some extra money or receive gift cards for sharing your opinions. Check out online survey sites like Survey Junkie, OneOpinion, InboxDollars and Opinion Outpost to get started. When it comes to compensation, some of the survey sites pay $2 (or less) per hour of work. This isn’t a way to get rich quick, but it can give you some extra pocket money.

Watch Videos

Videos are another great way to earn a little extra cash. Sign up with Swagbucks or Inbox Dollars, and you can choose to watch movie previews, TV shows, news, commercials and more on your mobile device or laptop. In exchange, those sites will give you points, which you can redeem for your choice of cash via PayPal or gift cards to different retail establishments. On sites like Swagbucks, the payout could be up to $90 a month.

Listen to Music

For audiophiles, there’s some easy money out there for you, too. You can register with music review sites Slicethepie, Playlist Push and HitPredictor to listen to songs and rate them. You’ll receive a payment for each review, but these are variable since they reward quality reviews.

This means the more detailed, varied and constructive review you give, the better the payout you should receive – though this is more an art than a science. Payment is received via PayPal.

Play Games

Gamers might enjoy earning some dollars for their efforts. With apps like Coin Pop, you can earn coins that can be exchanged for gift cards or cash via PayPal. Keep in mind that the payout is pretty small and depends on how much time you spend playing games on the app, but the rewards add up over time. Note that you can also play games for money via sites like Swagbucks.

Transcribe Audio

If you’re a good typist (roughly 60 words per minute or more), then you might want to try your hand at transcribing. Websites like Rev offer money for transcriptions of different audio recordings, including lectures, podcasts and interviews. Plus, Rev is good about paying their transcriptionists each week through PayPal.

Refer Your Friends

Some businesses, from credit card companies and banks to retailers and travel sites, will pay you for referring your friends. Typically, after you make your own purchase, you’ll be directed to a web page asking you to refer your friends by giving you a personal link to share.

You’ll receive a referral bonus for each friend that clicks the link and purchases the service or product. The payout varies. For instance, currently, T-Mobile gives a $50 prepaid gift card for a successful referral while Grove Collective offers $10 for one.

Do Millionaires Have Debt?

Data from the Federal Reserve shows that wealthy people actually end up borrowing a lot more money than the country’s lowest earners. And the top 1% of the population actually holds a whopping 4.6% of all debt, while the bottom 50% of the country only has 36% of outstanding debt.

Here’s why rich people are borrowing a lot more money than you’d expect.

According to the Federal Reserve, there are a few primary reasons why rich people tend to borrow more than lower earners.

The first big reason is that wealthier people, in general, tend to have much higher mortgage debt than those with lower incomes. And since they are in a better position to get approved for mortgage loans, they are more likely to own a home. Lower income people who can’t afford to buy a house or who can’t get approved for a mortgage won’t have mortgage debt.

Wealthy people also tend to take out larger mortgages and purchase bigger houses. That’s because they can take advantage of the mortgage interest deduction, which essentially subsidizes their home purchase since the government covers some of their interest cost through tax savings.

While the deduction is available to lower income people as well, you have to itemize in order to get it — and a large standard deduction often means that itemizing doesn’t make sense unless you’re wealthy and have lots of individual deductions to claim.

Taking out mortgages tends to benefit wealthy Americans because owning a home helps them to build their net worth. They acquire equity in their homes as they pay down their mortgage and their wealth grows when the property goes up in value.

The top 1% of Americans also hold 2.1% of consumer credit, which includes credit card debt. However, while wealthy Americans often charge a lot on their cards to earn rewards, they’re also likely to pay off their balances in full before they owe credit card interest. Although these balances are paid off, they still show up in the total outstanding credit that wealthy people have since sometimes card companies report a balance before it’s been fully paid.

The data shows that while rich Americans are borrowing a lot, they’re doing so in strategic ways and using debt as a tool. The borrowing they are doing tends to earn them a tax deduction (in the case of a mortgage) and credit card rewards, and they aren’t paying a lot in interest because they pay off their card balances in full and because mortgages tend to have low rates. In the case of a mortgage, they’re also taking out a loan to buy an asset that will typically grow their net worth.

Can I Get Free Money From the Government?

Free money from the government took on a new meaning in 2020 and 2021, with the issuance of significant COVID relief. While much of the pandemic-related relief has ended, for now, there are other day-to-day government programs available to those in need. But unlike the stimulus checks that were issued automatically during COVID, you’ll have to seek out and apply for these financial boosts.

Most of these programs are funded by taxes, so technically you pay something, but it’s as close as you’ll get to finding free money from the government.

1. Get help with utility bills

Need help paying your heating or phone bill? These programs may be able to help:

• The Low Income Home Energy Assistance Program helps low-income households cover heating and cooling costs. Grants are issued via states, which receive funding from the Department of Health and Human Services. Each state sets its own eligibility requirements, including income levels.
• The Lifeline program offers discounted phone or internet service. You must meet certain eligibility requirements.

2. Find money for child care

Day care is a major expense for many families. Annual costs for infant care range from just shy of $5,000 in Mississippi to more than $22,600 in Washington, D.C., according to the Economic Policy Institute, a nonprofit organization focused on low- and middle-income workers..

The Child Care and Development Fund can help ease the burden on low-income families. Administered by the U.S. Department of Health and Human Services, the fund gives states, territories, and tribes money to distribute to families to help pay for child care. Grants are income-based and typically cover care for children under 13. Find the Child Care and Development Fund contact for your state.

3. Recover unclaimed money

This isn’t so much free money as it is money owed to you. It could be a long-forgotten deposit paid to a utility company, a lost savings bond, unclaimed life insurance benefits or an uncashed paycheck.

These unclaimed funds are turned over to the state when the owner can’t be located, often due to a clerical error or companies having an old address on file. Visit unclaimed.org, a site affiliated with the National Association of State Treasurers, to find out if you have money waiting to be claimed.

During the 2020 fiscal year, more than $2.8 billion in previously unclaimed property was returned to owners, with an average claim payment of about $1,600.

4. Get down payment assistance

You want to buy a home but can’t afford a down payment. Enter state-based down payment assistance. These grants and loans help you cover the upfront costs of purchasing a home.

In Nevada, for example, prospective homeowners who qualify can pay a fee and receive a grant of up to 5% of their home loan value to put toward a down payment and closing costs. Help isn’t reserved for low-income borrowers. For government loans, Nevada’s grant program is available to those with an annual income below $105,000.

5. Find tax credits for health insurance

Individuals and families who buy medical coverage through the government’s health insurance marketplace (HealthCare.gov) may qualify for a credit toward their insurance premiums. The premium tax credit can be paid directly to your insurance provider, lowering your monthly payments.

6. Apply for college grants

College grants, like the federal Pell Grant, can make it easier to pay for college. Students who are eligible for the Pell Grant could get up to $6,495 for the 2022-23 award year

. The exact amount awarded is based on factors that include financial need, the cost of attendance and enrollment status. Students can apply for the Pell Grant by completing the Free Application for Federal Student Aid, or FAFSA. The application is also used to qualify for many state and institutional grants and scholarships.

Other federal grants for college include:

• The Federal Supplemental Educational Opportunity Grant.
• The Teacher Education Assistance for College and Higher Education Grant.
• The Iraq and Afghanistan Service Grant.

You can also look for scholarships using the U.S. Department of Labor’s scholarship search tool.

Why Should I Never Invest Using Borrowed Money?

Borrowing money for an investment is bad because it increases the risk of the investment and if you lose the money, you are still left with payments on it. Investing in mutual funds ensures diversification, which lowers risks.

There are several reasons why you should not borrow. In as much as you can do your due diligence in maximizing your capital, now one can fully predict the future. There may also be tax benefits if you’re on a high marginal tax rate, such as tax deductions on interest payments.

But, the more you borrow the more you can lose. The major risks of borrowing to invest are:

• Capital risk — The value of your investment can go down. If you have to sell the investment quickly it may not cover the loan balance
• Bigger losses — Borrowing to invest increases the amount you’ll lose if your investments fall in value. You need to repay the loan and interest regardless of how your investment goes.
• Investment income risk — The income from an investment may be lower than expected. For example, a renter may move out or a company may not pay a dividend. Make sure you can cover living costs and loan repayments if you don’t get any investment income.
• Interest rate risk — If you have a variable rate loan, the interest rate and interest payments can increase. If interest rates went up by 2% or 4%, could you still afford the repayments?

Borrowing to invest only makes sense if the return (after tax) is greater than all the costs of the investment and the loan. If not, you’re taking on a lot of risk for a low or negative return.

What Assets Should I Buy With Borrowed Money?

Student loans are probably the most common example of good debt, given the correlation between a college degree and higher earnings throughout your career. But that’s just the start. “Good debt can help borrowers accomplish an objective or help them avoid a bad outcome,” says Mook.

When it comes to accomplishing your objectives, consider another common example of good debt: taking out a mortgage on a new house. For most people, it’s not possible to pay for a house outright. However, even if you were able to pay for it in one large payment, there are benefits to taking on debt for a home.

Paying down a mortgage results in equity in a home as well as potential tax advantages. Plus, if you know you’ll be able to make your monthly payment, there is the additional benefit of improving your credit score by making the payments consistently.

Depending on your circumstances and risk tolerance, 

 can be another good debt strategy. Say you’re investing $100 with an expected 10% rate of return. If you invested your own money, you would earn $10. But if you were to invest half your money and borrow for the other half, you could earn more, if the interest on the loan is less than 10%. In this example, says Mook, “you leveraged your return.”

Another potentially effective debt strategy involves using a loan to diversify your investment portfolio, especially for certain affluent individuals who hold a concentrated stock position in a single company.

They can borrow against that concentrated position to buy stocks in other companies, making for a more balanced long-term investment strategy. An added benefit of borrowing against a concentrated stock position to diversify your portfolio is that you may defer paying the capital gains tax you would incur if you sold the concentrated stock.

Where Can I Borrow Money to Start a Business?

Start-up funding can be very tricky. After all, you are asking the lender to give you money based on a business idea. There are no proven facts to back up your assumptions that the business will generate money, so it is considered highly risky. Formal lenders do not like risk.

Friends and family. If you’ll go this route, be clear about the terms and put everything in writing, so no bad blood arises.

When Bill Skees, a former IT pro, needed funding to open his independent bookstore — Well Read New & Used Books in Hawthorne, N.J. — he asked his six siblings for three-year, 3.5% family loans. “At the time I was starting up in 2010, small-business bank loans were hard to get,” says Skees, who raised $124,000 from his family. He expects the money will be fully repaid by the end of 2014.

Banks and credit unions. Banks are not always easy to crack when it comes to small business lending. It goes without saying that you’ll need a firm business plan and a squeaky-clean credit record to get approved.

Your first stop should be a bank that’s familiar with you or your industry or one that’s known for having a soft spot for small-business lending.

It’s a good idea to seek out one that offers Small Business Administration (SBA)-guaranteed loans; check the “Local Resources” page on the agency’s website (Sba.gov). SBA-guaranteed bank loans tend to demand a lower down payment, and monthly payments may be more manageable.

That said, a lender will probably want you to show that you have some skin in the game, too. That means you must be able to show that you have capital or equity that you’re prepared to invest in the business.

Angel investors and venture capital firms. Getting financing from them can be a high-wire dance. But if you can do a little soft-shoe and have a great idea and terrific business plan, these types of investors will back you in exchange for equity or partial ownership. If this route interests you, check out the SBA’s Small Business Investment Company Program.

Economic development programs. There is a range of development loan programs out there, but finding one you can tap might take a little sleuthing and you may need special certification to qualify. For example, if you’re a woman, you might consider getting your firm certified as a woman-owned business.

If you’re the principal owner and from a minority group or are located in an economically disadvantaged region, you might qualify for a special loan as well.

The SBA’s economic development department resources can help you decide if this might be an avenue for you. If you’re a veteran, the Department of Veterans Affairs can provide you with information on how to get certified.

Corporate programs. Some big businesses offer small business start-up support as well. For instance, Michelin North America, based in Greenville, S.C., has provided low-interest financing — loans ranging from $10,000 to $100,000 — to certain minority-owned and disadvantaged businesses, including women-owned firms, in parts of South Carolina.

Grants. Go to Grants.gov for information on more than 1,000 federal grant programs.

Female entrepreneurs may want to connect with one of the SBA’s Women’s Business Centers around the country. These centers provide state, local and private grant information to women interested in going into business for themselves with a nonprofit or for-profit organization.

Crowdfunding and crowdlending sites. These virtual fundraising campaigns generally raise small sums, but you never know, the money can add up.

The king of crowfunding is Kickstarter, where it’s easy to get started. You simply post on its site a sketch of your project with a video, your target dollar amount and your deadline. You then blast out an email to friends, family and colleagues and politely ask them to share your project and funding invitation with their friends.

When someone opts to donate to your cause, payments are made via a charge to their credit card via Amazon. Once you reach your goal, Kickstarter takes 5% and you pay 3 to 5% to Amazon’s credit card service. If you don’t raise the money by the deadline, the pledges are canceled; your contributors aren’t charged for their donation and Kickstarter takes nothing.

Other crowdfunding sites for raising seed money online include Rock The Post, a free network that helps entrepreneurs meet professionals and investors who can help via funds, time or materials; Indiegogo and AngelList, which can match you up with potential angel investors.

Crowdlending is a variation on the theme of crowdfunding, but the people who assist you expect to get their money back. The Kiva website has a program called Kiva Zip, which patches together zero-percent loans as small as $5. The Accion crowdlender site offers loans with annual interest rates from 11 to 16%, plus closing and application costs.

Rollovers As Business Startups (ROBS). Here, you use your 401(k), Individual Retirement Account or other retirement funds to finance a business without incurring taxes or Internal Revenue Service penalties. The account gets rolled over into a new retirement fund that, effectively, becomes a shareholder in your business.

But be careful: ROBs are complicated and if you don’t set yours up right, you could owe penalties and a big tax bill. An article in Daily Tax Report, “Examinations of Rollovers as Business Start-Ups Arrangements: A Guide to Surviving IRS Scrutiny” might be worth reading.

Home equity loans. If you have substantial equity built up in your house and a credit score well above 700, this route may be a pretty good option. The funds are usually taken as a lump sum that you can pay off over time. And interest is not sky high, roughly 4.5% right now.

Credit cards. Using plastic is certainly easy, but it’s a risky choice. Most cards have double-digit interest rates on balances that roll over month to month. That’s a pretty high bar to saddle a new company with in its early days.

What Are the Risks of Borrowing Money?

Some entrepreneurs think that the only goal of borrowing is to get approved or just to have some form of financing they can use. But it’s bigger than that. It’s actually common for businesses to grow and then to need additional capital to propel themselves to the next level. It’s also common for things like debt and credit mistakes to stop them from qualifying for that additional capital.

Here are the four biggest dangers of borrowing money the wrong way when building a business:

1. Allowing Lenders to Take Too Much Collateral With a Loan

This one can be a bit difficult if you’re not familiar with choosing the right bank to work with. Here are some questions to ask yourself:

• Can you borrow the money you need without pledging any collateral to the bank? Some banks require collateral on all loans;  other banks will extend certain types of loans or lines of credit without any collateral requirements.
• What is a reasonable collateral request based on the loan you’re requesting? If you’re looking for millions of dollars for a large expansion, you’re not going to get it without collateral. However, if you only need $50,000 or $100,000 for working capital or financing some receivables, you’re an established business and you’ve got good personal credit, then you may be able to get that financing without needing collateral.

You will need to work with a good person at the right bank, but you get the idea.

2. Not Being Committed to Maintaining (or Improving) Your Personal Credit

Although bank financing is challenging to get, it’s always going to be the cheapest form of funding for your business. There are “alternative” financing options galore but it should always be your goal to get your business to be “bankable.” In other words, you want to be able to obtain your loans and lines of credit from a bank.

As a small business owner, your personal credit is normally one of the key ingredients in the underwriting process to see if your loan request will be approved. If you have excellent credit, maintain it. Don’t let yourself get “too busy” to pay your bills on time.

Don’t use your personal credit cards for business expenses – this is possibly the biggest credit mistake made by small business owners. If your credit needs improvement, then be proactive about improving it. Your business will thank you.

3. Not Knowing the Impact of Your Loan on Your Budget and Cash Flow

We would probably all agree that excessive debt is never a good thing for any business. But what impact does the loan have on your budget? There are two important factors here:

• Use the funding you obtain for RGA (revenue-generating activities). If you grow the business with your loan or line of credit, then you’ll probably be able to justify the impact the loan has on your budget and cash-flow.
• Keep in mind that cash flow is usually more important than interest rates. In other words, if you can extend a loan from a three-year repayment period to four or five years in exchange for a little higher interest rate, consider what lower payments mean to your budget and cash flow. If that saves you $150 a month in the form of a lower payment then it may be your best bet. If you end up growing faster than you project and your cash flow is excellent, you can pay that loan off at an accelerated pace. However, if your growth is slower than you expect or you have tight cash flow, you’ll be glad you extended the terms.

4. Choosing the Wrong Loan for Your Purpose

Do you need a loan or a line of credit? Based on your credit, business, industry, collateral, revenue, profit, etc., do you know what your borrowing options are? If you understand what your options are, you can choose the loan solution that’s best for you.

Here is an example of a printing company that requested a factoring facility but they actually qualified for an unsecured business line of credit from a bank. That meant a lower cost, no UCC lien against the business, and no notification to their creditors about selling their receivables to a third party.

Although they qualified for a lending solution that was “better” than they thought, it’s probably much more common for small business owners to think they can get bank financing when they really are not “bankable.”

Who is Not Eligible For a PPP loan?

If you’re looking to apply for a PPP loan, you’ll first need to confirm you meet the requirements for the second round of PPP. These requirements are different depending on whether you’re looking for your first or second PPP loan.

First draw PPP loans

If the following statements apply to your business, you are eligible to apply for your first PPP loan.

• Your business was operational before February 15, 2020
• Your business is still open and operational
• You have no more than 500 employees
• If your business has multiple locations, you have no more than 500 employees per location

Second draw PPP loans

If the following statements apply to your business, you are eligible to apply for your second PPP loan.

• You have used up your first PPP loan
• Your business was operational before February 15, 2020
• Your business is still open and operational
• You have no more than 300 employees
• If your business has multiple locations, you have no more than 300 employees per location
• You can show a 25% or greater reduction in gross revenue

Showing a 25% or greater reduction in revenue

A 25% or greater reduction can be shown in one of two ways:

• Comparing your annual gross revenue as reported on your tax return in 2020 to 2019
• Comparing your gross revenue in any quarter in 2020 with your revenue in the same quarter of 2019

For example, if a business wants to use the second quarter (Q2) of 2019 where they recorded $20,000 in gross revenue, they are eligible if they recorded a gross revenue of $15,000 or less in Q2 2020.

General disqualifiers for the PPP loan

If any of the following statements apply to your business, you are not eligible for any PPP loan.

• You were not in operation on or before February 15, 2020
• You only employ household employees such as nannies or housekeepers (this is not considered a business)
• An owner of 20% or more of the business has a prior fraud-related criminal record
• You, or any business owned or controlled by you or any of your owners, is delinquent or has defaulted on a loan from the SBA or any other Federal agency within the last seven years (this excludes federal student loans)
• You or your business is bankrupt or is currently in bankruptcy proceedings
• You are an officer or key employee of the lender you are applying with, or a close relative of one (you may only apply for the PPP with an unaffiliated lender)
• Your business is a hedge fund or private equity firm
• You do business in an industry that is generally not eligible for SBA 7(a) loans, such as speculation or multi-sales distribution

Independent contractors

If the PPP loan application for independent contractors is unchanged for 2021, you will need a tax-ready 2019 or 2020 Schedule C from your personal Form 1040 tax return. While it does not have to be filed, it must be complete and accurate. You will need all your 1099-MISC forms (which are 1099-NEC forms in 2020) handy in order to complete your Schedule C.

You must have reported a net profit on your Schedule C in 2019 or 2020.

Sole proprietorships and Single-Member LLCs

If the PPP loan application process for sole proprietors is unchanged for 2021, you will need a tax-ready 2019 or 2020 Schedule C from your personal tax return. While it does not have to be filed, it must be complete and accurate.

You must have reported a net profit on your Schedule C in 2019 or 2020.

If you also have employees on the payroll, you do not need a net profit, but you must have payroll tax forms 940 and 941/944 for 2019 or 2020.

Partnerships

Individuals should not submit separate applications, but only submit one PPP application on behalf of the partnership.

If you also have employees on the payroll, you should have payroll tax forms 940 and 941/944 for 2019 or 2020. The SBA guidelines allow for payroll processor records containing equivalent payroll tax information, but your lender may not accept those.

Read Also: Quick Selling Items on Etsy in 2023

PPP loans also provide coverage for partners that can’t take a salary. You can include their self-employment earnings as reported on their Schedule K-1 capped at $100,000 and multiplied by 0.925

S corporations

Only S corps who have payroll are eligible for the PPP. If you were only paid through owner draws or distributions and did not pay payroll tax, you have no payroll costs to report and the PPP is not suitable for you.

If you also have employees on the payroll, you should have payroll tax forms 940 and 941/944 for 2019 or 2020. The SBA guidelines allow for payroll processor records containing equivalent payroll tax information, but your lender may not accept those.

C corporations

Only C corps who have payroll are eligible for the PPP. If you were only paid through owner’s draws or distributions and did not pay payroll tax, you have no payroll costs to report and the PPP is not suitable for you.

If you also have employees on the payroll, you should have payroll tax forms 940 and 941/944 for 2019 or 2020. The SBA guidelines allow for payroll processor records containing equivalent payroll tax information, but your lender may not accept those.

Nonprofits

You will need to have run payroll in 2019 or 2020 to qualify for the PPP. Faith-based organizations should also consult the SBA’s guidance on eligibility.