In response to the economic turmoil caused by the coronavirus, at the end of last week, the federal government approved a $ 2,000 billion stimulus package known as the CARES Act. The 880-page document is a large and complex piece of legislation. On top of that, last minute changes and clarifications have created a lot of confusion and misunderstanding as to what exactly the bill means for small businesses.
Over the past week, my team spoke with the Small Business Administration (SBA), lawmakers, our lending partners, and others to clarify how the programs work, who will qualify, and how they can apply. Here are the basics of what every small business owner in America should know.
The CARES law includes 3 distinct programs
Within the legislation are three different programs focused on helping small businesses: the Paycheck Protection Program (PPP), Economic Disaster Loans (EIDL), and Emergency Grants. case of economic injury.
1. Paycheque Protection Program
The PPP is the coin on which I am personally the most optimistic. Virtually any small business in the United States will be able to qualify. There are only two qualifications: to have less than 500 employees and to have been in business before February 15, 2020.
The amount to which companies will be eligible depends on one thing: the payroll. Take the 2019 average monthly payroll and multiply it by 2.5, that’s it. Note that the pay Is include all types of compensation, including salaries, wages, commissions, health care, and insurance premiums. The only thing that cannot be included is salary costs over $ 100,000. So if you have an employee who earns more than that, you can only calculate up to $ 100,000 of their salary ($ 8,333.33).
Another important thing to note is that a large portion of this particular loan can be forfeited if it is used for approved expenses within eight weeks of receiving the funds. Payroll, rent, utilities, and mortgage interest are all expenses eligible for the rebate, provided employees are not made redundant and wages are not reduced. It is important that you keep careful documentation of these expenses, as it will be necessary to apply for a loan forgiveness from the SBA.
PPP loans are 100% government backed, but will be funded by SBA-approved lenders as part of an unprecedented public-private partnership that includes banks, credit unions and fintech lenders, including understood online loan markets like Lendio. PPP loans have an extremely low rate (1%) and a term of 2 years.
Finally, PPP loans will be available from Friday April 3, 2020. Frankly, most banks will not be ready to finance loans by Friday (things are moving too fast!); Hopefully the capital will be available for small businesses over the next week.
2. Economic disaster loans
These loans come from an announcement prior to the adoption of the CARES law. I’ll be honest, I’m wary of this program as loans are processed and funded only by the SBA and at a time when speed is of the essence this could be a problem for some businesses. While the SBA is a proven conduit for emergency funding, it suffers from rigid rules and slow decision cycles. So at best I would expect funds to be delivered within 60-90 days through this program–much longer than most smaller businesses have the capacity to survive.
If, however, business owners can wait awhile, this could be a great option. Loans can be up to $ 2 million with an interest rate of 3.75% over 10 years. Additionally, the SBA has relaxed the criteria for determining whether a business can be approved. Business owners will only need to prove that they have one of the following: good cash flow, a good credit rating or a guarantee.
EIDLs are facilitated and funded solely by the SBA and can be requested on SBA.gov or through a local SBA office. Another element of the EIDL program that prompts business owners to apply is an emergency grant of $ 10,000 for economic hardship that can be requested after application.
3. Emergency grants for economic damage
Due to the influx of applications that the SBA is currently fielding, and given the time it will take to fund the millions of EIDL applications, the SBA is offering a grant of $ 10,000 to any business owner who EIDL asks – and they will issue the fund within three days.
This grant is basically free money. So if you are applying for an EIDL, I highly recommend that you complete the grant application and take advantage of what could be a $ 10,000 lifeline for your business. To apply for the grant, your company must first apply for the EIDL and then apply for the grant. This can be done on SBA.gov or through a local SBA office.
It is an unprecedented time for small business owners across the country. The challenges and concerns continue to mount as quarantine orders remain in place. Over the next 90 days, some 30 million business owners may need to get loans. The government has done its part to make the funds available in a way that has never been done before; now it’s up to us in the small business lending community to quickly get that money into the hands of business owners. As stressful, painful, and slow as the process may seem, I hope small business owners across the country know there is an army ready to help the US economy get back on its feet.