Our nation’s entrepreneurs, small businesses, and nonprofit organizations are facing an unprecedented economic disruption due to the coronavirus outbreak. On Friday, March 27, 2020, President Trump signed the CARES Act into law. It contains $376 billion in relief for American workers and small businesses.
But where do our local entrepreneurs, business owners and non-profit organizations go to apply for that relief, and what are the strings that are attached to any loan? Generally, small businesses now have two options for funding to help them through the current crisis: an economic injury disaster loan from the Small Business Administration and a bank, credit union or a technology lender approved by the SBA that does SBA 7(a) loans. The latter loans under the auspices of the Paycheck Protection Program.
The loan from the SBA is a direct loan. To apply, visit https://covid19relief.sba.gov/#/. Eligible for the loan are small businesses with 500 or fewer employees (which includes sole proprietorships, independent contractors and self-employed persons) and private non-profit organizations and veterans organizations. Businesses and non-profits must have been up and running by Jan. 31, 2020.
The maximum loan amount of the SBA’s economic injury disaster loan is $2 million. The amount is determined by the SBA based on gross revenue and cost of goods sold in the previous year. Applicants can request up to $10,000 in advance, which can be distributed within three days. Applicants are not required to pay back the loan advance if they are denied a loan.
The SBA’s economic injury disaster loan program offers loan forgiveness for the loan advance as long as the money is used for coronavirus-related sick leave, payroll increased costs, rent or mortgage or obligations that cannot be met because of revenue losses.
The annual interest rate is $3.75 percent for businesses and 2.75 percent for non-profits.
Loan terms for the payback can be up to 30 years with the first payment due one year after the origination date. The loan can be used for expenses that otherwise could have been met if not for the coronavirus pandemic.
Collateral is required for loans more than $25,000. A personal guarantee is required for loans above $200,000.
The SBA says it should take two to three weeks plus five days for the loan to be approved.
The Paycheck Protection Program is available from a banking institution where the business or organization has an existing relationship. Eligible for this program are small businesses, 501(c)(3) organizations with 500 or fewer employees, veterans organizations, sole proprietors and independent contractors. Applicants must have been in business or operational by Feb. 15, 2020.
The maximum loan amount under the Paycheck Protection Program is the lesser of 2.5 times the average monthly payroll costs of the last 12 months or $10 million. Loan forgiveness is available on the principal portion of the loan for the eight-week period after the loan is received for the following expenses: payroll costs (must be 75 percent of the amount forgiven), interest on a mortgage, rent and utilities.
The annual interest rate is fixed at 1 percent on any remaining balance after the forgiveness. The loan term is two years for any balance not forgiven. The first loan payment is due six months after the origination date.
Under the terms of the Paycheck Protection Program, the loan can be used for payroll, healthcare premiums, insurance premiums, mortgage payments, rent, utilities and other debt.
No collateral or personal guarantee is required. The first disbursement of the loan will occur no later than ten calendar days from the date of the loan approval.
