The Small Business Administration (SBA) has graced its fair share of headlines over the past month. Following the passage of the Coronavirus Aid, Relief and Economic Security (CARES) act, the federal government granted the SBA $377 billion in funds to be given as loans to small businesses nationwide.
The SBA in 2019 gave out more than $28 billion in loans to small businesses. The $377 billion from the CARES act represents a substantial increase in its capacity, though it’s not been enough to meet the needs of every business that applied. The program reported having exhausted the almost $350 billion in mid-April.
But lawmakers have publicly said that they will look to dispatch additional assistance for small businesses nationwide (a business or non-profit with less than 500 employees or that otherwise meets its respective industry standard). If your business did not receive a loan from the federal government during this last round of funding despite being eligible for one, do your best not to despair. When those additional funds are made available — a reported $250 billion — relief should be made available.
Seem intimidating? This may be unprecedented, but it’s not impossible. Let us break it down for you.
What is the CARES Act?
The CARES (Coronavirus Relief, Aid and Economic Security) Act is a bill created by Congress and signed into law by President Trump at the end of March. The $2.2 trillion dollar relief package allocated funds to small businesses — but also to corporations, individuals, public health and to education, among other things.
What’s inside for my business?
The CARES Act made available two different types of loans for small businesses; Paycheck Protection Program (PPP) loans and Economic Injury Disaster Loans (EIDLs). Though the terms of the two loans are different, both are meant to provide assistance in the wake of COVID-19 prompted damages you’ve sustained.
The Paycheck Protection Program
As the name denotes, this particular loan program places emphasis on keeping your payroll intact. Loans are meant to be worth two months of payroll and other expenses. Businesses can apply for loans capped at $10 million; payroll cost will be capped at $100,000 per employee on an annualized basis (meaning two months’ worth of a $100,000 yearly salary).
The terms of this loan program are particularly unique to the COVID-19 pandemic: loans have the potential to be forgiven, essentially turning them into grants. In order to have your PPP loan forgiven, 75% of the cost must be used for your payroll. The remaining 25% can be used for other essential expenses like rent, utilities, or mortgage interest payments. In order to have the loans forgiven, employers must maintain payroll as it existed pre-coronavirus; decreasing the headcount of your staff or implementing paycuts reduces loan forgiveness.
Business owners must use their loans within an eight week window of receiving payment. The window to receive loans closes June 30, 2020. If your loan is not forgiven, an interest rate of 1% will apply. The loan is due in two years, though there are no penalties for early payment.
Economic Injury Disaster Loans: You must be located in a county that has declared a coronavirus-related disaster and have sustained economic injury (loss of profit or otherwise disruption of your cash flow) to be eligible for these disaster loans. Businesses can apply for both physical disaster and economic disaster loans, though combined loans are capped at $2 million dollars.
These loans are meant to replace lost cash flow for your business: profits you would have otherwise made if not for pandemic-related shutdowns or restrictions on the way you’re allowed to do business.
Interest on disaster loans is 3.75% for businesses and 2.75% for non-profits per year. The SBA is offering long-term payments over a length of up to 30 years.
As part of the EIDLs, meant to provide short-term relief for businesses who are hurting as a result of shutdowns in their regions, the SBA is also offering Economic Injury Disaster Advances. Small business owners and non-profits in disaster-declared areas are eligible to apply for these advances — up to $10,000. The advance will not have to be repaid, the SBA has said.
Who’s eligible for these loans?
The SBA has said businesses with less than 500 employees or which meet their industry standards for “small business” can apply. The agency is also accepting restaurants or other hospitality industry members with multiple locations and less than 500 employees at each location.
How can I apply for these loans?
As of mid-April, the SBA has ceased accepting applications for its coronavirus relief loan programs, but the federal government has repeatedly made clear its intention to sign additional funds for small businesses into law.
Once funds are made available again, you’ll complete the process through your own bank. The SBA has partnered with banks nationwide, including those previously approved as an SBA lender and those not. Some banks have opted out of the program — make sure you check with your bank while waiting to apply.
You must have a business bank account in order to receive the funds. If you do not currently have a business bank account, now would be a good time to open one — once things do resume after additional funding is allocated, that’ll allow you to apply and receive your funds as quickly as possible. When can I expect to receive the funding from my loan?
The SBA originally projected a timeline of as little as three days for business owners to receive their loans in their bank accounts. Overwhelming demand has delayed the process, the agency has said, and the first round of funds were taking anywhere between two and three weeks to reach applicants. When the second round of funding is finalized, business owners may see a quicker turn around, especially as the terms of the program are polished and made more efficient.
This is an unprecedented time for the United States’ small business community, just as this relief program, in its scale and timeline, are largely unprecedented. Industry experts have asked business owners not to despair — funding will be made available to small businesses that need it. As of April 19, lawmakers have not yet passed the second round of funding, but have been vocal about their bi-partisan intention to do so. The additional funding has been delayed due to party-line differences in ideas about who, exactly, the funding should include — but small businesses will be given priority. Keep an eye on the news and stay in touch with your local bank to make sure you receive your loan in as expedited a fashion as possible.