There is no denying that right now is an exceptionally difficult time for small businesses and startups. But the government is trying to ease the pain. Last week, Congress passed the CARES Act, a $2 trillion coronavirus relief package. The legislation established or expanded several programs to help small businesses. Here’s how it could help you and your business.
Paycheck Protection Program
One of the largest parts of the CARES Act sets aside nearly $350 billion for a small business loan program called the Paycheck Protection Program (PPP). These loans come with fewer restrictions and less red tape than the standard loans provided by the ,Small Business Administration (SBA). PPP is designed to help small businesses by putting cash into their hands quickly, in the hope that the small businesses can use the money to keep employees on the payroll longer.
PPP loans can be up to 2.5x the business’s average monthly payroll costs. However, cost per employee are capped at $100,000 and, in total, the loan cannot exceed $10 million. No personal guarantee or collateral is required. Loans mature after two years and have an interest rate of 0.5%. Lenders will defer payments, fees, principal, and interest for at least six months. And, in some cases, the loans can be converted to grants, meaning they would not need to be repaid.
To apply, your business must have been operational as of February 15, 2020 and had paid employees at that time (yes, you count as the owner). You or your business must also fall into one of the following categories:
- Businesses and non-profits that meet the SBA’s standard business size definition;
- Self-employed workers, sole proprietors, freelance and gig economy workers; or
- 501(c)(19) veteran organizations
In addition, lenders will also ask you to certify, in good faith, that:
- The loan is needed to support ongoing operations;
- The loan will be used to retain workers, maintain payroll, and pay for mortgage, lease, and utility payments;
- The borrower does not have a pending application for a similar loan; and
- The borrower did not get a similar loan between Feb. 15, 2020 and Dec. 31, 2020.
Small businesses can begin applying for loans under the program on April 3, and self-employed individuals and independent contractors can begin applying on April 10. The application can be found here. Business can submit the application to any existing SBA-approved private lender or through federally insured depository institutions and credit unions. Check with your local bank or credit union to see if they are taking part in the program.
Economic Injury Disaster Loans and Loan Advances
SBA’s Economic Injury Disaster Loan program (EIDL) offers up to $2 million in working capital loans to help small businesses that suffered a temporary loss of revenue during a disaster survive until normal operations can resume. The interest rate is 3.75% for small businesses and 2.75% for non-profits. EIDL loans offer long-term repayments up to 30 years, and the first month’s payment is deferred for up to a year.
In addition, small business owners in all U.S. states, territories, and Washington D.C. are eligible to apply for an advance of up to $10,000 under the Economic Injury Disaster Loan Program. This advance can provide immediate relief to ailing businesses.
The application for an EIDL loan is here. (Some are reporting that it took less than five minutes to apply.) Funds will be made available within three days of a successful application, and the loan advance will not have to be repaid.
SBA Express Bridge Loans
SBA’s Express Bridge Loan Pilot Program allows small businesses who work with an SBA Express Lender to access loans up to $25,000 quickly, and with less paperwork. These loans are intended to bridge the gap while businesses apply for a larger loans with EIDL. These loans can also be repaid in full, or in part, by the proceeds from an EIDL loan. Information on this pilot program can be found here.
Do you have questions about how you can help your business during this health crisis? Don’t hesitate give us a call, or reach out to email@example.com.
This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.