This article is a part of Revby's COVID-19 Small Business Support Series. Due to the nature of our unprecedented situation, many details are fast developing and subject to change. All efforts are given to provide accurate information according to official sources (such as SBA.gov and other federal and local authorities) as of the date of publication.
The last few weeks have been dizzying for small business owners and their employees across the country. While coping with business interruption, many have also been trying to make sense of emergency funding options, loan terms and application processes. While the US Small Business Administration (SBA) coordinated its Economic Injury Disaster Loan for businesses located in COVID-19 declared disaster areas earlier this month, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which was just signed into law on Friday, March 27, 2020, introduces a second loan opportunity through its Paycheck Protection Program. This article provides a brief outline of these two distinct opportunities and offers resources to learn more.
1. The SBA Economic Injury Disaster Loan (EIDL):
As stated on the SBA website,
"The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue.
In response to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000.
The loan advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available within three days of a successful application, and this loan advance will not have to be repaid."
Purpose: Working capital to help businesses sustain operations.
Process: A streamlined online application process went live on March 30. Apply on the SBA's website.
Terms: 3.75% interest rate / 2.75% for non-profits; terms up to 30 years; credit history / ability to repay considered; collateral required for loans over $25,000
Highlight: When applying, you may request a $10,000 advance, which does not need to be paid back.
More Information: The SBA EIDL is available to any small business (for-profit, non-profit, sole proprietors included) with less than 500 employees. Application and funding is provided directly with the SBA. Visit https://www.sba.gov/funding-programs/disaster-assistance for more information.
2. The SBA-Backed Paycheck Protection Program
One of the most significant provisions in the CARES Act for small businesses and sole proprietors is the Paycheck Protection Program. In contrast to the SBA EIDL, the application process and funding is made available through an SBA-qualified lender (not the SBA directly), which may include your local bank or credit union.
NOTE: As of publication of this article, the signing of the CARES Act is so recent that the logistics, including the application process and definition of required documentation, are not yet confirmed. It may take a week or longer for this to become available. For now, please standby for further announcements on the process or monitor the SBA site for the latest. We also recommend viewing info subscribing to the US Chamber of Commerce's Coronavirus Small Business Resource Guide for updates and other useful resources.
UPDATE (APRIL 3): The official version of the Paycheck Protection Program application was released this morning from the SBA: Download Here. I was on a conference call with Chase Bank yesterday (April 2) afternoon and they still did not have any guidance from the federal government on how to process the applications, so it won't be surprising if banks are not ready today. Stay in touch with your local bank, who should be able to provide guidance to you from here. At least with the info at the link above, you can be prepared in advance.
UPDATE (APRIL 2):
Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders. Source: https://home.treasury.gov/cares
As stated on the SBA website:
"The Paycheck Protection Program is designed to provide a direct incentive for small businesses to keep their workers on payroll by providing each small business a loan up to $10 million for payroll and certain other expenses.
If all employees are kept on payroll for eight weeks, SBA will forgive the portion of the loans used for payroll, rent, mortgage interest, or utilities. Up to 100 percent of the loan is forgivable."
Purpose: To allow small businesses to retain as many people (regular employees or 1099 contractors) on staff as possible and continue to fund rent/mortgage and utilities.
Terms: Loans can be up to 2.5 x the borrower’s average monthly payroll costs, not to exceed 10 million. For additional details on qualification, forgiveness calculation, and other details, check out these great overviews from:
US Department of the Treasury: https://home.treasury.gov/system/files/136/PPP--Fact-Sheet.pdf
Process: Application process will be handled directly with an SBA-qualified lender. Applications are expected to be made available by the lenders in the next week or so. We recommend reaching out to the bank where you have a current banking relationship to confirm they are an SBA-qualified lender and will participate in the Paycheck Protection Program. For a list of SBA-qualified lenders in Massachusetts, visit: https://www.sba.gov/sites/default/files/articles/SBA_Lenders_Updated_2020.pdf?
More Information: Small businesses, including non-profits, sole proprietorships, self-employed individuals, and independent contractors may be eligible to apply. Monitor the SBA site to see the latest guidance as this program gets ready to go online.
Can a business get an EIDL and a Paycheck Protection Program loan?
According to the US Chamber of Commerce,
"Yes, small businesses can get both an EIDL and a Paycheck Protection Program loan as long as they don’t pay for the same expenses."