Recently, much has been written regarding Coronavirus relief options for small businesses through traditional SBA funding and several new temporary programs established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Important information about each program including the application process and qualifications can be found on the SBA’s website here.
The two primary relief options are the Economic Injury Disaster Loan (EIDL) Emergency Advance and the Paycheck Protection Program. Both programs are loan options and contain the possibility of forgiveness. Both programs also have restrictions on how the loan may be used. See SBA for more information on use requirements.
EIDL allows small businesses to receive a loan of up to $2 million ($25,000 unsecured) with an available grant advance of up to $10,000. This loan will be automatically deferred for 12 months with a term of up to 30 years and an interest rate of 3.75%. EIDL eligibility includes:
- Small Businesses started before January 31, 2020 Small Businesses (under 500 employees)
- Sole Proprietors (under 500 employees)
- Independent Contractors
- Self-Employed Persons
- Cooperatives (under 500 employees)
- Employee Stock Ownership Plan (ESOP) (under 500 employees)
- Tribal small business (under 500 employees)
- Agricultural cooperative, aquaculture enterprise, nursery, or producer cooperative (under 500 employees)
- Business with more than 500 employees but under SBA Size Standards
- Private non-profit organization with IRS designation 501(c),(d), or (e) OR State evidence is a non-profit one organized or doing business under State law, or a faith-based organization.
The Paycheck Protection Program is designed to provide up to 8 weeks of payroll and other business expenses. Loans may be requested for up to $10 million. Loan will be deferred for six months with a two-year repayment term and 1% interest rate. Loan eligibility requirements include:
- Small Businesses started before February 15, 2020
- Any small business concern that meets SBA’s size standards (either the industry based sized standard or the alternative size standard)
- Any business, 501(c)(3) non-profit organization, 501(c)(19) veteran organizations, or Tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of: 500 employees, or
- That meets the SBA industry size standard if more than 500
- Any business with a NAICS Code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location
- Sole proprietors, independent contractors, and self-employed persons
Loan Forgiveness
In regard to the PPP, the loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease. To apply for loan forgiveness each recipient should be prepared to submit a written request to your lender. The lender will have 60 days to reply. The written request should include documents verifying full time equivalent employees, employee pay rates, payments on eligible mortgage, payments on eligible lease, and payments on utilities.
Forgiveness regarding the EIDL Emergency Advance program is limited to the grant advance itself of up to $10,000 which must be used for prescribed business expenses.
During the rollout of these programs, one thing is clear. No one has all the answers. There is a great deal of confusion regarding the two most talked about programs the EIDL Emergency Advance and the Paycheck Protection Program (PPP). Please keep in mind that available information is changing rapidly and is often based on the current understanding or interpretation of these programs. It can and likely will continue to change. Rather than speculate as to the answers to some of the more difficult questions surrounding each program, a better approach is to focus on some practical steps you can take to help these programs work for your business most effectively.
First, Get Educated
Consult with your lawyers, CPAs, Bankers and Financial Advisors regarding these programs as soon as you are able. There are daily webinars put on by various groups including local and regional SBA offices, Chamber of Commerce groups, CPA firms, Banks and Law firms. One excellent way to engage the latest information about these programs is through social media. Many local and regional SBA offices are very active relaying educational opportunities and available information via their official twitter accounts.
Do Not Delay
Once you have identified a broad understanding of how these programs may help your business DO NOT DELAY. The PPP for small businesses was made available April 3rd and many have already submitted applications. Independent Contractors and Self-Employed Individuals may begin applying April 10th, 2020.
Make sure that you are being proactive in applying as soon as you can if you have not already applied. The EIDL Emergency Advance application can be found on the SBA’s website here.
For the PPP, you will need to apply through a bank or credit union. The SBA and others are recommending, if possible, you work with a banker that you have an existing banking relationship with. You can find eligible lenders here.
Organization is Key
Having strong paper and digital business records will help you tremendously during the application process but also be vigilant about keeping records during and after the loan application process as well. It is important to ask lots of questions, take good notes and get any clarification in writing. It is confirmed that businesses will be asked to provide their NAICS code and DUNs number as part of the application process. These can easily be accessed by Coley customers here under the Entity Dashboard.
Follow Up
Be patient but not too patient. Throughout the rollout of these programs, it is clear the timing of funding is delayed. It is also clear that the businesses that have followed the steps laid out above will have the most success. Regarding the EIDL Emergency Advance and the Paycheck Protection Program, it may be necessary to engage daily. The SBA has determined that the loans will be distributed on a first come first served basis. Do not be afraid to regularly follow up with the SBA and/or your Banker directly. The adage “The squeaky wheel gets the grease” certainly applies here. Again, it is prudent to utilize the social media accounts of local and regional SBA offices, Chamber of Commerce groups, CPA firms, Banks and Law firms for the latest updates, information, and interpretations of these programs.
Are Other Programs a Better Option for Your Business?
Do not overlook the lesser talked about SBA Express Bridge Loans and SBA Debt Relief programs. For those that qualify, there is evidence that these programs applications are being processed more quickly, simply because they have been less utilized during the Coronavirus event. For example, for businesses that qualify, the SBA Express Bridge Loan may be a more efficient and more realistic program to quickly access funds as an alternative to the EIDL that is currently plagued with delays and confusion. Specifics about this program can be found here.
Seeking debt relief instead of a new loan from a program like the Paycheck Protection Program may be an option for many small businesses. The SBA Debt Relief program may be an excellent choice for those businesses that already have current SBA 7(a), 504 or microloans. More specific information about this program can be found here.
Additionally, there are some general indications that businesses that qualified for SBA funding before the expansion of the qualifications under the recent CARES Act may have an advantage in tapping these resources most effectively. Businesses with an existing relationship with the SBA or businesses with a profile familiar to the SBA could experience smoother application processes across the board. More information about one such qualifying business, SBA 7(a), can be found here.
One Last Important Tip for Our Coley Customers – Action Item!
Business owners around the country may have recently had their identities compromised through the SBA website intended to help them during the Coronavirus event. There is no confirmation yet on how many business owners could have been exposed; the SBA is only saying a “limited number”. One thing is for sure, if you feel you may have been exposed, it is paramount that you take action now. The SBA disaster relief loan application process requires both a personal and business credit check. For small business owners, there is currently no mechanism for freezing a business credit file. Normally a personal credit freeze would be appropriate if you believe you have been compromised, but a freeze now could delay or hinder your ability to complete personal identity verifications and personal credit checks required for the SBA disaster funding opportunities. So, what should you do? Diligently monitor your personal and business credit to protect your identity against potential fraud. There are indications that fraud has increased since the Coronavirus event with reports of increased phishing scams, fraud-focused phone calls and even app stores flooded with data-leaking apps specifically targeting small businesses seeking SBA loans under the new programs Credit monitoring services are offered through the 3 major credit bureaus as well as other commercial providers.
Coley GCS will continue to monitor and will publish more updates as they become available.
