There is a large sum of money, $ 377 billion, intended to support small businesses in the latest coronavirus stimulation package from Congress. Understanding exactly how to access it can be confusing.
The funds in the CARES Act, enacted by President Donald Trump on March 27, are divided into three small business programs that offer forgivable loans and grants, as well as loan delays. These small business management programs also apply to not-for-profit organizations that meet the size requirements.
In this article, we will focus on the two that allow businesses to apply for new loans, through the relief options available on the SBA website. The first is the Payment Protection Program (PPP), which allows organizations to receive up to $10 million in fully forgivable loans if they do not lay off their employees or if they rehire employees they have already laid off.
The second is the EIDL (Economic Injury Disaster Lending Program), which includes a $ 10,000 grant that companies can apply for and do not have to repay. The rest of the EIDL loan, which is limited to $ 2 million, is not forgivable, but it can be more flexible than the PPP in the types of expenses it covers.
Experts believe that businesses and non-profit organizations can apply for both, and should do so quickly. You are encouraged to submit your application as soon as you can as there is a funding limit. Since the programs have a limited amount of funds, early application is important.
Currently, the EIDL application is already active and accessible on the Covid19 SBA site and can be sent directly to the SBA website. The PPP app is available from April 3. It can be sent directly to banks, as well as financial technology companies, including PayPal and Square, which have recently been approved as creditors.
The EIDL (Economic Injury Disaster Loan) and PPP (Paycheck Protection Program) are the two main options available to small businesses and non-profit organizations for financial support during the coronavirus epidemic. It is important to note that organizations can receive both loans.
• Payment Protection Program (PPP)
Most of the incentive funds for small businesses, in accordance with the CARES Act, of approximately $ 349 billion, are devoted to the creation of the payment protection program, which aims to secure loans that the company needs to cover eight weeks' wages, as well as some utility and rental fees.
If companies keep their employees on their payroll or rehire them by June 30, after they have been laid off, these loans can be canceled entirely. Businesses can apply 2.5 times the average monthly staff cost for this loan. At least 75% of the loan must be used to cover staff costs so that the entire loan can be forgiven.
Organizations can request a PPP by calling banks and creditors directly. Many of these institutions have online forms specially configured for this program.
• Economic Injury Disaster Loan (EIDL)
There is $10 billion in the stimulus bill that has been allocated to the EIDL, a program that has been around for some time. This money will go for two things: Set up a subsidy program that would provide an emergency "advance" of $ 10,000 that businesses will not have to pay and finance low-interest lending organizations that can be used to cover their expenses. You will need to return these funds. The amount of loan that organizations can request will be based on the amount of "financial damage" suffered because of the coronavirus.
Businesses and non-profit organizations can apply for EIDL directly on the Small Business Administration website.
The PPP and EIDL applications are now operational, although there is still much uncertainty as to how long it will take for the SBA and the banks to process these loans.
Banks have expressed concern about the rapid implementation of the PPP, and some have limited the loan requests they receive from existing customers.
The $10,000 donations that are part of the EIDL program have been viewed as one of the quickest ways for businesses to benefit. Still, this program has also generated overwhelming interest, which could cause delays in receiving a response. Also, the amount of the subsidy is now capped at $ 1,000 per employee, so that any business with fewer than ten employees would not be eligible to receive the full amount.
In the agency's initial schedule, if a business is approved for these grants, it can receive them within three days of approval. However, the businesses have reported significant delays in obtaining status updates.
Any business or non-profit organization requesting an EIDL loan can indicate its interest in the emergency advance, and that organizations can still receive the loan, even if they have not been approved for the entire loan.
The first step is to determine Eligibility.
The first step for companies and non-profit organizations interested in these programs is to determine if they are eligible for these specific loans, the main objective being to help organizations that have suffered from financial uncertainty due to the coronavirus epidemic.
In addition to meeting the size standards set by the SBA, non-profit organizations and businesses must show that their business has been affected by the pandemic.
Non-profit organizations and businesses qualify for the PPP must be operational by February 15, 2020, and demonstrate that the economic consequences of the coronavirus have affected them.
This includes:
• Any business with 500 employees or less
• Any 501 (c) 3 non-profit organization with 500 or fewer employees or meeting SBA size requirements
• Independently owned franchise
• Restaurants, hotels or other businesses classified in "Accommodation or food services" with 500 employees or less in each independent location
• Tribal and veteran businesses 501 (c) 9 organizations
• Gig workers, self-employed workers, and sole proprietors.
Find out which loan makes the most sense for you and your organization.
Organizations will need to assess which loan program best suits their immediate needs, although several experts believe there is no harm in applying for both.
This decision is recommended to ensure that companies have more options, as long as they don't use both loans for the same purpose. An EIDL loan cannot be used to pay employees in March, for example, if a PPP loan was already used.
The approach of the two programs is ultimately slightly different.
According to PPP, the loans are mainly intended to cover staff costs up to $ 100,000 per employee. Still, they can also be used to cover other expenses, including utilities, rents, and interest payments of mortgages. Loans used to cover these costs are fully repayable at the end of the eight week period in which they are used, but if the money is used for other expenses, this part of the funds will not be released.
Under the EIDL, grants and loans can be used for a wide range of costs, including rent and mortgage payments, wages, paid leave for workers, and business needs. Since small business owners don't have to worry about so many loan forgiveness rules, there is a little more flexibility in terms of these funds.
If a business or non-profit is looking for faster cash flow, the EIDL route, which includes fast approval of the $ 10,000 emergency grant, maybe the best step.
The major difference between both programs is that PPP loans are fully forgivable if companies meet a specific set of requirements, unlike EIDL loans (except for the $ 10,000 grant). The limit for PPP loans is also higher, at $ 10 million per organization, while EIDL loans have a limit of $ 2 million.
Loan applications must go through two different channels.
• To apply for the PPP loan: Businesses can directly call the bank or the current lender, and the application is now available on the SBA website.
• To apply for the EIDL loan and a grant of $ 10,000: Small business and non-profit owners can apply directly to the Small Business Administration on its website. When small businesses apply for the EIDL loan, they can indicate that they are interested in an emergency grant at the same time.
The 1,800 banks currently participating in the SBA 7 (a) loan program are also expected to participate in the PPP option, and the Treasury Department has continued to approve new creditors in recent weeks, including Square, PayPal, and Intuit.
Participating institutions already include hundreds of people across the country. However, some, such as Bank of America, may require businesses to have an existing account in the institution to be taken into account for PPPs. Businesses can consult their banks directly to determine if this is the case.
You can find a complete list of banks that currently offer 7 (a) loans on the SBA website, and companies can search for lenders in your area using the agency's loan tool.
Flynn Financial Group Inc