Important Information About Small Business Association Loans and Other Assistance
Small Business Administration Efforts
Small businesses have been troubled by compulsory closures and safety measures enforced to slow the spread of the coronavirus. However, there are now a growing number of relief packages and resources available to ease the burden on enterprises, including SBA loans.
The coronavirus stimulus bill or CARES (Coronavirus Aid, Relief, and Economic Security) Act was signed into law on Friday, March 27, 2020. The $2 trillion financial stimulus package, the largest in U.S. history, makes select changes to support businesses affected by COVID-19.
Also known as the Paycheck Protection Program (PPL), the scheme aims to prevent small business failure and job losses caused by the pandemic.
$350 billion has been allocated to assist small businesses to protect employees amid the pandemic and economic downturn.
These changes include:
- Paycheck Protection Loans (PPL)
- Increased availability to U.S. Small Business Administration (SBA) Economic Injury Disaster Loans (EIDL)
- Emergency grants of up to $10,000 for applicants of SBA EIDL
- Tax deadline extension
Paycheck Protection Loans (PPL)
The SBA will guarantee paycheck Protection Loans for businesses with less than 500 employees.
Loan terms will be available up to 10 years and with interest rates up to 4%, a significant reduction from the norm.
Lenders, including banks and credit unions, will lend up to $10 million.
Businesses can defer payments for up to a year, and most importantly, some or all these loans may be forgiven.
If borrowers sustain their payrolls for eight weeks at normal salary levels or restore their payrolls afterward, then the amount they spent on payroll costs, rent payments and utility payments, mortgage interest, can be combined. That portion of the loan will be forgiven.
Economic Injury Disaster Loans (EIDL)
Economic Injury Disaster Loans are more readily available for small businesses and non-profits. The eligibility criteria to apply for an EIDL has been developed to allow even more companies to get support if they have been affected by COVID-19.
The application process has been made easier, and loans come directly from the SBA, who can now approve EIDLs using just the applicant’s credit score. Any EIDL application smaller than $200,000 can be authorized without a personal guarantee. Other special rules also make it easier for businesses to get a loan.
Tribal businesses, Employee Stock Ownership Plans (ESOPs), and cooperatives with less than 500 employees can now apply for EIDL. Non-profit organizations, which include 501(c)(6)s, and individuals running as sole proprietors or independent contractors, can also apply.
Loans up to $2 million will carry an interest rate or 3.75% and 2.75% for the respective businesses. Loan terms will differ depending on the applicant but can be up to 30 years.
The stimulus package allows for applicants with less than 500 employees, and applicants don’t necessarily have to have a personal guarantee on loans less than $200,000. Payments can be deferred for up to four years.
Businesses can apply for both the EIDL and PPL if the funds don’t pay for the same expenses.
In the event that your business is declined a loan, companies can still gain access to an emergency grant of up to $10,000. This grant is specifically for payment of employee sick leave, payroll maintenance, mortgage, or rent expenses or utility costs.
This cash advance may also be forgiven if spent on the specified criteria, increased costs due to supply chain disruption, or other repayment obligations that cannot be met due to loss in revenue because of the coronavirus epidemic.
Tax Deadline Extension
The Tax Deadline 2019 has been moved to July 15, 2020. Businesses and individuals have the option to extend the payment of their tax payments, up to $10 million, from April 15 to July 15.
Numerous states have now complied with the new federal deadline and aligned their tax filing dates. Some may waive or reduce penalties on late payments. Check with your state tax agency for further information.
The Federal Deposit Insurance Corporation (FDIC) is also urging state banking agencies and financial institutions to support their corporate customers.
Loan applications take around two hours to complete. Always seek advice from your financial advisor or lender before applying for both loans.
For further information on SBA EIDL, relief programs and guidance to small businesses through the coronavirus crisis, visit the official SBA government website.
The U.S. Chamber of Commerce has also issued a guide for small businesses.
The Federal Emergency Management Agency (FEMA) is working with the White House Coronavirus Task Force and other official bodies to execute a “Whole of America” response. Visit their official site for factual update