The COVID-19 Pandemic has put unprecedented pressure on small businesses throughout the United States. To help mitigate the financial pain of dealing with the crisis, the federal government recently signed the Coronavirus Aid, Relief and Economic Security (CARES) Act into law to provide $2 trillion in financial aid to businesses and households.
For small businesses, there are three different programs that you can take advantage of to help navigate your business through these rough waters.
- Paycheck Protection Program (PPP)
- SBA Economic Injury Disaster Loan (EIDL)
- SBA Economic Injury Disaster Loan (EIDL) Emergency Grants
The Paycheck Protection Program* provides small businesses with payroll relief in exchange for retaining their workforce. The 100% federally guaranteed loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payroll as the outbreak dissipates.
Who is Eligible for PPP?
The legislation allows the Small Business Administration to cast a wide net – including freelancers – when assisting businesses affected by the pandemic.
- A small business with fewer than 500 employees. This includes all employees including full-time, part-time and any other status.
- A small business that otherwise meets the SBA’s size standard
- Non-profits with fewer than 500 employees
- Individuals who operate as a sole proprietor, independent contractor or self-employed individuals
- Tribal businesses that meet the SBA size standard
- A 501(c)(19) Veterans Organization that meets the SBA size standard
There are also a couple of special rules that could make you eligible:
- For those in the food service industry, the 500-employee rule is applied on a per physical location basis.
- If you are receiving financial assistance from an approved Small Business Investment Company or operate a franchise business, the normal affiliation rules do not apply.
How Much Money Do I Qualify For?
If you are an eligible business, you can obtain 2.5 times the average total monthly payments for payroll costs incurred during the one-year period before the date on which the loan was made. If you operate a seasonal business, the calculation will be made off of the average monthly payroll costs incurred between February 15, 2019 – June 20, 2019, or March 1, 2019 – June 20, 2019.
Your payroll costs can include the following:
- Salary, wage, commission, tips or similar compensation
- Any PTO or leave payments
- Healthcare benefits, including insurance premiums
- Payment of any retirement benefit
- State or local tax assessed on the compensation of the employee
- Sum of payments of any compensation to independent contractors or sole proprietorships that is a wage, commission income, net earnings from self-employment, or similar compensation
These payroll costs must be excluded from your calculation:
- Compensation of any employee making an annual salary in excess of $100,000. This total is prorated for the period of February 15 – June 30, 2020.
- Payroll taxes, railroad retirement taxes and income taxes
- Compensation of an employee whose main residence is outside of the United States
- Qualified sick or family leave in which a credit is allowed under section 7001 or 7003 of the Familes First Coronavirus Response Act
Can the Payback on the Loan be Forgiven?
Yes! Your business is eligible for forgiveness equal to the amount you spent on the following items during the 8-week period beginning on the loan’s origination date.
- Payroll Costs
- Interest on the mortgage obligation incurred in the ordinary course of business
- Rent on a leasing agreement
- Payments on utilities (electricity, gas, water, transportation, telephone or internet)
- For businesses with tipped employees, additional wages paid to those employees.
Please note that loan forgiveness cannot exceed the principal.
One element of the legislation that you need to keep in mind is that the loan forgiveness can be reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees.
*Source for Information: United States Chamber of Commerce
How Do I Apply for the PPP?
Strategic Capital’s experienced team of advisors are able to walk you through the entire process and help you obtain the funding as soon as possible.
The SBA Economic Injury Disaster Loan program allows small businesses to obtain working capital of up to $2 million to help overcome the temporary loss of revenue due to the COVID-19 outbreak. Small businesses may use the capital to pay fixed debts, payroll, accounts payable or any other bills that cannot be paid.
Who Can Apply and What are the Requirements?
As long as your business fits within the SBA employee size standard for your respective industry and if you are located within a disaster-declared area, you are eligible to apply. This resource will show you if you fit the SBA employee size standard.
Here are the general requirements for the EIDL:
- Collateral is required for EIDL’s greater than $25,000
- Credit History must be acceptable to the SBA
- You must submit the following documents during the submission process:
- SBA Loan Application (SBA Form 5 or 5c)
- SBA Form 1368
- Personal Financial Statement (SBA Form 413)
- Schedule of Liabilities (SBA Form 2202)
- Tax Information Authorization (IRS Form 4506T)
- Copies of the most recent federal income tax return
- SBA Form 1368
To apply for the EIDL, you can visit the SBA website.
What Type of Terms May I Expect?
Your business will have the opportunity to receive up to $2 million on a secured instrument and up to $25,000 if the loan is unsecured. The term length is up to 30 years with a 3.75% interest rate on businesses and a 2.75% rate on most private non-profits.
Once approved for the loan, you will receive an initial disbursement of $25,000 with the other disbursements scheduled with a loan officer.
The Emergency Grant Program allows you to obtain up to $10,000 in working capital within three days of applying for the Economic Injury Disaster Loan. With these funds coming in the form of a grant, you will not be required to repay the loan – even if your business is denied the EIDL.
What are the Qualifications?
To qualify for the grant, you just need to meet the following criteria:
- Small Business with 500 or fewer employees
- Sole Proprietorships
- Cooperative of 500 or fewer employees
- ESOP (500 or fewer employees)
- Tribal small business (500 or fewer employees)
What May I Use the Grant For?
You may use the funds for the following:
- Retaining employees
- Pay rent or mortgage bills
- Pay outstanding bills that previously couldn’t be fulfilled due to revenue loss
- Provide sick leave to employees unable to work due to the direct effect of COVID-19.
- Meet increased costs to obtain necessary materials unavailable from your original supplier due to interrupted supply chains.
Checking for pre-approval will not affect your credit score.