What Businesses Need to Know About Emergency Loan Options

Small-business owners will be able to get loans under the stimulus bill this week. President Trump signed on March 27 the Coronavirus Aid, Relief, and Economic Security Act. The legislation provides a stimulus package worth approximately $2 trillion. The CARES Act expanded certain loan programs administered by the Small Business Admin. It also created a new SBA program to help small-business owners affected by the coronavirus outbreak. The loan programs all have different purposes so small businesses will have to compare what option works best for them.

The bill established a new $349 billion program to help smalls keep their workforce on the payroll. The Paycheck Protection Program will provide capital to small businesses without collateral requirements, personal guarantees or SBA fees. All loan payments will be deferred for six months but will accrue interest during this period. The SBA will forgive the portion of the loan that is used to cover the first eight weeks of payroll costs, rent, utilities and mortgage interest. Businesses must keep their workforce largely intact during that period to qualify for loan forgiveness. No more than 25% of the forgiven amount can be used for non-payroll costs. Loans can be for an amount 2.5 times the borrower’s average monthly payroll costs for a maximum of $10 million. The interest rate will be fixed at 1% (You can find more information about the program here. The loan application form for borrowers can be found here).

Many small businesses will likely qualify for Payroll Protection loans. Businesses and other employers must have been in operation on February 15, 2020, to qualify. Small businesses, nonprofits, self-employed individuals and veterans organizations with 500 or fewer workers can apply for the loans under the new program.  Some businesses with fewer than 1,500 employees in certain industries may qualify, too (click here to see more information about the SBA’s size standards). Businesses that have pending or existing SBA disaster assistance loans can still receive funding through the Paycheck Protection Program as long as the loans aren’t used for the same thing. A single business can only apply for one loan under the program, but owners with multiple business entities can apply for each of them separately. Small business owners can begin applying for PP loans on April 3. Independent contractors and people who are self-employed can begin applying on April 10.

Some lenders will have to become certified by the SBA before they can participate in the PP program. Because the anticipated response is greater than anything ever experienced by the SBA, the agency will allow lenders that don’t currently participate in any of its loan programs to process and service these loans. Federally insured banks, credit unions, farm banks and a broad range of nonbanks can participate in the Paycheck Protection Program, but they must be certified by the SBA first. The loans will come with a 100% guarantee from the SBA. The agency will speed up the certification process. Lenders have the authority to approve loans on the spot so folks can get their money on the same day. Lenders will be compensated by processing fees paid by Uncle Sam. (You will likely have to open an account at the bank where you applied for the loan if you don’t already have an account there.)

For businesses that need a quick infusion of capital to cover expenses right now, a disaster loan and an emergency grant could help. The CARES Act broadened the existing Economic Injury Disaster Loans program maintained by the SBA. The CARES Act significantly expanded the disaster loan eligibility and can provide emergency cash advances that may qualify for forgiveness if used for paid leave, payroll maintenance, meeting higher supply chain costs and other qualified expenses. Those applying for a disaster loan can also receive a cash grant of up to $10,000 within three days of applying for the loan. There are restrictions on businesses that receive the loans. Small businesses must apply for the loans directly with the SBA. See  https://disasterloan.sba.gov/ela/

For those needing help to keep up with payments on your current SBA loan, the agency’s Small Business Debt Relief program could help. The program provides immediate relief to small businesses with non-disaster SBA loans, such as the SBA’s 7(a) and 504 loans, and microloans. Under the program, the SBA will cover all loan payments on existing loans, including principal, interest and fees, for six months.