Tips for Appropriately Spending Your Small Business Loan During the COVID-19 Pandemic


In addition to the medical impact that COVID-19 has caused, businesses have also taken a hit from this pandemic. Small businesses have immensely struggled because they don't have as many resources (and as much flexibility) as more established corporations. To cushion such companies from long-term financial complications, various organisations are extending emergency loans to small businesses.

Most of these loans are being provided at low-interest rates and with flexible repayment terms. Their primary purpose is to help such companies keep their doors open, pay their workers, and meet necessary recurrent expenses. If you're thinking about applying for an emergency loan, here's what you should know regarding proper spending and accounting for these funds.

1. Use the money to sustain essential operations

Emergency loans are meant to help you fuel essential operations. This means that you can use the money to cover daily expenses, pay your employees, and settle outstanding bills with suppliers. In this way, your business can continue running even in a limited capacity (such as social distancing guidelines).

For accounting purposes, the definition of daily expenses is broad. A restaurant may use loan funds to pay utility bills, purchase kitchen supplies, or procure sanitation equipment. On the other hand, an e-commerce company may use its loan funds to pay for web hosting, inventory costs, and data security infrastructure.

The key is to properly outline your expenses and record them in your books promptly. Each expense incurred should be fundamental to the needs of your business so you can avoid misusing funds. Other costs relevant to COVID-19 emergency loans include rent and fees for third party personnel such as accountants. Therefore, don't ignore or postpone your bookkeeping needs just because you requested for a loan. These services are a fundamental part of the smooth operation of your small business.  

2. Avoid using the loan for less important matters

Some business owners tend to spend loan funds on non-essential expenses. For example, most lenders don't expect you to use their funds on employee bonuses, debt refinancing or personal needs. Make sure no owners of the company are redirecting loan funds to cater to their domestic obligations. Furthermore, these loans are typically not meant to fund performance bonuses or pay dividends to shareholders.

Because some of these expenses can be challenging to classify, it is best to consult your accountant on identifying non-essential expenses. Proper bookkeeping also helps you keep track of usage patterns while promoting accountability and transparency. Learn more by contacting local accounting services. 


21 December 2020

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