10 things small businesses need to know
By Neil Hare
Updated May 18, 2020: The US Treasury Just Provided Guidance On A Safe Zone For PPP Lending. See New Treasury guidelines provide safe harbor for PPP loans.
The federal government recently enacted two laws to help small businesses weather the COVID-19 crisis, including the CARES Law (Coronavirus Aid, Relief, and Economic Security) passed on March 25, which provides $ 349 billion in loans to the Small Business Administration (SBA). The previous bill provided for $ 7 billion in additional loans.
It is important to note that the government’s goal is to get these loans back into the hands of small business owners as quickly as possible, in order to keep them alive and to be able to continue paying their employees. The loans are intended to meet the loss of sales and operating capacity as well as the corresponding inability to pay employees, rent and other business-related costs due to the pandemic. To this end, the SBA tries to relax the previous requirements for obtaining loans and tries to make the process as easy as possible.
There are currently two types of loans available: Economic disaster loans (EIDL) and Paycheque Protection Loans (PPP). You can apply for both loans, but you cannot use the funds from each loan for the same expenses such as payroll, rent, insurance, etc.
Here are 10 things you should know about loan programs:
1. If you are a business with less than 500 employees, you are considered a small business (with a few exceptions) and are eligible for loans. Non-profit organizations and veterans organizations are also eligible. All 50 states have been declared disaster areas and therefore no matter where your business is based you can apply.
2. EIDL loans offer up to $ 2 million for working capital needs such as fixed debt and payroll. You apply for an EIDL loan on the SBA website www.sba.gov/disaster. The interest rate is 3.75% for businesses and 2.75% for non-profit organizations with a possible term of 30 years. There is an automatic one-year deferral on repayment so that the first payment is not due for a full year, although interest begins to accrue at the time of disbursement.
3. If you are applying for an EIDL loan, you can apply for a $ 10,000 grant for working capital. Do not forget to check the box for the grant application! The requirements for the application have also been reduced and no additional documentation such as income tax returns or personal financial statements are required when submitting the application. The SBA claims that you will receive this grant within three days whether or not you ultimately qualify for a loan. Again, this is a grant that does not have to be repaid.
4. PPP loans provide up to $ 10 million. You should apply for this loan from an SBA certified lender starting April 3. The SBA will certify additional banks to meet demand, but it could take several weeks. You can calculate the amount to which you are entitled by multiplying by 2.5 your average salary costs for all employees up to $ 100,000 of salary per employee. Independent entrepreneurs are not included in this calculation as they can apply for their own PPP loans.
5. Once the loan is secured, you track all these expenses for 8 weeks. After this time, you must return to the lender and document them. They will review and, if acceptable, write off the portion of the loan used for expenses (i.e. it becomes a grant that you don’t have to repay). If you downsize during this period, they will reduce the discount proportionally to the reduction (i.e. if the payroll is reduced by 25%, the discount is reduced by 25%).
6. For the loan part do not forgiven, the interest rate is 1% for a term of two years. Interest accrues from the start of the loan, but there is a 6 month deferral on the first payment and no prepayment penalty.
7. If you received the EIDL grant of $ 10,000, it will be subtracted from the amount of the rebate. All previous EIDL loans can be incorporated into new PPP loans.
8. The SBA waives the previous requirement to have additional credit options, as well as the need to apply for additional credit and not secure it before applying for these loans – the “Credit Test Elsewhere”. The SBA will also be lenient if you have a bad credit rating and are considering future loss of income more than the ability to repay.
9. The SBA waives the obligation to secure the loan with real estate or personal collateral, and the review of personal financial statements.
ten. Apply to sba.gov/funding-programs/disaster-assistance.
Regulations are still evolving when it comes to these loans, so stay tuned for updated information. The bottom line is that the SBA tries to reduce the requirements as much as possible, grant and loan as much money as possible, and provide more lenders to administer these loans. There is a cap on this round of funding, so apply today.
I am a lawyer and president of Global Vision Communication, an agency specializing in strategic communications, marketing and advertising for professional associations, nonprofits, coalitions and businesses. I specialize in small business policy and have led small business awareness campaigns for large organizations such as Visa, MasterCard, US Chamber of Commerce, and US Department of Commerce. I am a writer, a member of a creative think tank, and an expert in communication and business strategy. I am a sought-after speaker at business events on Marketing and Communications, both inside and outside the Beltway. I am also the author of two novels, An Animal Cries and God in Hell’s Kitchen.