What Can the SBA Do to Help?
As everyone knows, this is a scary time for business owners across the world and many small businesses are struggling to stay afloat during this COVID-19 crisis. However, there are several programs that have been put into place by congress through the CARES Act, in an effort to help small businesses make it through to the other side of this pandemic. The resources below offer several opportunities for small businesses to obtain funds to help them ride out this difficult economic time.
Small Business Administration Economic Injury Disaster Loan Program
As part of its’ disaster assistance program, the SBA is providing low-interest, working capital loans of up to $2 million to small businesses and nonprofits (including faith-based) with less than 500 employees affected by the coronavirus. These loans carry an interest rate of 3.75% for small businesses and 2.75% for nonprofits. Loan repayment terms vary by the applicant but can range up to a maximum of 30 years, with the payments being deferred for the first year. The loan can be used to cover expenses such as debts, payroll, accounts payable, and other expenses that businesses are struggling to pay as a result of the current economic disaster.
In order to streamline the process to make funds available as quickly as possible, applicants in most cases do not have to submit Tax Returns and the loan approval process can be based on their credit score. Eligible businesses are also able to receive up to $200,000 without any personal guarantee, no collateral is need for loans under $25,000 and some businesses are eligible for an emergency grant of up to $10,000 within 3 days, which would not have to be repaid.
Applicants can obtain more information and submit their applications online by visiting https://disasterloan.sba.gov/ela/Account/Login and selecting “Economic Injury” as the reason they are seeking assistance. In addition, for help with the application process, call the SBA Disaster Assistance Customer Service Center at 1-800-659-2955.
Paycheck Protection Program
The Paycheck Protection Program supplies $349 billion in forgivable loans to small businesses, non-profits, sole proprietors and independent contractors, with minimal requirements, to provide a way small for businesses with less than 500 employees to retain and continue paying as many of their employees as possible. Those businesses in the hotel and food service industries may qualify if they have more than 500 employees. This program not only helps small businesses, but helps many Americans keep their jobs as well, by supplying their employers with the funds needed to keep them on payroll during a time when their revenue is taking such a dramatic hit.
Under this program, eligible businesses can receive loans from local and national lenders, equal to the lesser of 2.5 months of average payroll or $10 million. So long as businesses spend the funds appropriately during the 8-week period following origination (i.e., payroll, benefits, rent, interest on mortgages, utilities), the loans can be converted to grants and will be eligible for dollar-for-dollar forgiveness. Although the program remains open until June 30th, small businesses are encouraged to apply as quickly as possible, due to the fact that this aid could possibly run out, given the number of applications being received. Businesses are also urged to speak with the banker at their current financial institution regarding their specific situation.
For details regarding applications and answers to frequently asked questions, visit https://www.uschamber.com/sites/default/files/023595_comm_corona_virus_smallbiz_loan_final.pdf.
SBA Will Subsidize Certain Existing Loans and New Loans
While there has been a lot of focus and attention on the SBA Economic Injury Disaster Loan and the Payroll Protection Programs included in the CARES Act, there is an additional $17 billion that has been appropriated under the Act in order to subsidize some existing SBA loans.
Under this portion of the Act, SBA will pay 6 months of the principal, interest, and fees due on SBA loans made under Section 7(a) or 7(m) of the Small Business Act or under Title V of the Small Business Investment Act, that originated after enactment of the CARES Act, commencing with the first payment due after March 27, 2020, as well as 6 months of principal, interest and fees for new SBA loans made between March 27, 2020, and September 27, 2020. Since many lenders already provided borrowers with temporary relief prior to the enactment of the CARES Act, some borrowers could be eligible to obtain 1 year of debt service relief, by taking advantage of their lenders temporary relief, as well as the SBA’s 6-month deferral. For more details, visit https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/sba-debt-relief.
The programs offered through the SBA differ from the programs available to mid-size and larger businesses. The U.S. Small Business Administration (SBA) Coronavirus Resource Page at https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources provides a list of relief programs, and it offers guidance to small business owners during this crisis. All business owners, regardless of the size of their business, are encouraged to consult with their financial institutions and advisors to ensure that they are being made aware of all of the resources and options available to them to assist them during this difficult time.
Availability of SBA Funds
As you may have heard, the initial funds made available through SBA have already been depleted, due to the number of businesses seeking relief through these programs. However, business owners should apply as soon as possible and should not wait for the SBA funds to be replenished before submitting their applications. In order to prevent any delays once additional funds are made available for these programs, business owners are highly encouraged to submit all of the necessary paperwork ahead of time, so that they can receive the relief immediately, once the additional funds become available.
Written by: Ragan Pattison and Amanda Engleman
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