Deep Dive Q & A: COVID-19 Small Business Relief Loans
April 3, 2020
April 3, 2020
New loan options are now available to help small businesses mitigate the economic consequences of the COVID-19 pandemic. Here are some common questions and answers about these loans based on recently released information from the Small Business Administration (SBA) and the U.S. Treasury Department.
There are two new loan programs, the Paycheck Protection Program and Economic Injury Disaster Loans.
As part of the Coronavirus Aid, Relief and Economic Security (CARES) Act, the Paycheck Protection Program (PPP) authorizes $349 billion in partially forgivable Section 7(a) SBA loans. These loans are issued by qualified SBA lenders and 100% guaranteed by the SBA.
The SBA’s Economic Injury Disaster Loan Program (EIDL) is a separate loan program passed in connection with the Families First Coronavirus Response Act.
Yes. However, the funds from the loans need to be used for different purposes. For example, one loan could be used for payroll expenses and the other for rent or utilities. Businesses that are interested in receiving a loan should apply to both programs. Because of the strong demand for these loans, you should apply as soon as possible.
Yes, both self-employed contractors and small businesses can apply for the PPP and EIDL loans. These programs are available to small businesses and nonprofits with fewer than 500 employees, sole proprietors and independent contractors.
No. Because independent contractors can apply for the PPP on their own, they are unable to be counted as employees for the purpose of the PPP loan calculations. This was a recent change announced in the interim final rule.
If you are a small business that can offer personal guarantees or guaranteed collateral such as property or equipment, then both loan programs could be a fit.
For EIDL loans, the SBA is currently waiving the required personal guarantees for loans up to $200,000. For loans over $200,000, a personal guarantee will be required. If you are not prepared to offer personal guarantees as collateral, then a PPP loan is likely a better choice because no personal guarantees or collateral are required.
Under the PPP, loan amounts will be 2.5 times average monthly payroll costs, up to $10 million. EIDL loans can be up to $2 million working capital for up to 30 years.
The PPP caps interest at 4% and payments or principal and interest are deferred for 6 months. Loans will be forgiven in an amount equal to 8 weeks of payroll, mortgage, rent and utility expenses, with the amount of forgiveness reduced if employee headcount or compensation is decreased.
EIDL loans carry an interest rate of 3.75% for small businesses, and as much as $10,000 of the loan amount is forgivable. In addition, the SBA offers a loan advance of as much as $10,000 for eligible applicants.
The EIDL application is available on the SBA website. A sample PPP loan application is also available from the SBA. Contact your lender to apply for a PPP loan.
For the PPP, you should gather:
Please note that this is not an exhaustive list, and the documentation required may vary by lender. If you have a pre-existing relationship with a bank, credit union, or authorized lender, check to see if they are an eligible PPP lender.
For an EIDL, you’ll need:
No. If you think you might use the money, you should apply. There are no penalties or costs associated with applying. Also, you don’t necessarily have to use the funds if you are approved.
The SBA and Chamber of Commerce have published detailed information about loans and other resources available to small businesses. You can also contact your local SBA approved lender to answer any questions you have.
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