Getting Government Cash for Your Small Business
With many businesses being shut down or substantially impacted by the Coronavirus event, we receive many calls from our Small Business Members about how they can get relief from the government. The recent Stimulus Bill ( the CARES Act) offers help in several ways.
Expanded SBA Economic Injury Disaster Loans
The Small Business Administration’s (SBA) Economic Injury Disaster Loan (EIDLs) are the first line of support. These loans aren’t new. They’ve always been available in the event of a disaster. However, according to the SBA, this is the first time a virus or pandemic event has been defined as a disaster.
Because of that declaration, businesses in every state and territory are now eligible to apply for Economic Injury Disaster loans (EIDL’s).
The SBA offers many favorable terms in their EIDLs:
- Loans are up to $2M
- The term is 30 years
- Interest Rates are 3.75% for small business and 2.75% for non-profits
- The first month’s payments are deferred a full year from the date of the promissory note
The CARES Act, an estimated $2 trillion package, specifically allows $10 Billion for EIDLS and $350 billion for Paycheck Protection Loans (more on those below) to help small businesses.
The EIDLs expanded provisions include:
EIDLs can be approved by the SBA based solely on an applicant’s credit score (not repayment ability and no tax return is required). Also, prior bankruptcy doesn’t disqualify you.
EIDLs smaller than $200,000 can be approved without a personal guarantee. They are not requiring real estate as collateral and will take a general security interest in business property.
Borrowers can receive $10,000 in an emergency grant cash advance that can be forgiven if spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments or repaying obligations that cannot be met due to revenue loss.
It expands access to sole proprietors or independent contractors, as well as tribal businesses, cooperatives, and ESOPs with fewer than 500 employees and all non-profits including 501(c)(6)s.
The $10,000 emergency cash grants are particularly interesting. Applicants can get the emergency cash even if they don’t qualify for additional funds. CARES also waives the requirement that you be able to obtain credit elsewhere. That means you can apply even if you already have a credit line. The grants are based upon self-certification and the applicant’s credit score.
You apply for these loans directly through the SBA at www.SBA.gov/disaster. There are no loan fees, guarantee fees or prepayment fees. As of March 30, the new streamlined online application is up and running. Make sure to apply for Economic Injury for the Coronavirus rather than physical damage due to another disaster (that is a different declaration number).
You must have been in business by January 31, 2020 to qualify, so you can’t start a business now and receive this kind of grant.
The SBA also offers other information and programming at www.sba.gov/coronavirus. How long will it take to get the money? We don’t know, but the sooner you apply the better. There are some 30 million small businesses in the United States. In a busy year, the SBA processes 800,000 applications. If the 3.3 million unemployment numbers show anything, there will be a lot of demand for the relief (and systems may be overloaded). So, the first applicants will be the first to get their money.
Paycheck Protection Loans
The CARES Act’s Paycheck Protection Program Loan Guarantee offers another source of help. Under this program, the SBA backs small-business loans through local lenders. According to the SBA, they currently work with 1800 lenders and plan to expand that given the anticipated demand.
Here are the particulars of this loan program:
Self-employed, sole proprietors, freelance and gig economy workers are also eligible to apply (again, you have to be in operation before February 15, 2020).
Loans are given up to a maximum of the lesser of $10 million, or 2.5 times the average monthly payroll costs – including wages for employees making under $100,000, as well as expenses for paid sick leave, healthcare and other benefits – during the 1 year period before the date on which the loan was made.
- The maximum interest rate under this program is 4%
- The loan term is up to 10 years
- No personal guarantee or collateral is required for the loan
- Payments are deferred up to six to 12 months
- Part of this loan may be forgiven and not counted as income to you, if it’s spent during the first eight weeks on operating expenses
As with the $10,000 advance on EDILs, loan forgiveness provisions are generous. Loans are forgiven when the proceeds are used for any of these costs:
- Payroll costs, excluding prorated amounts for individuals with compensation greater than $100,000
- Rent pursuant to a lease in force before February 15, 2020
- Electricity, gas, water, transportation, telephone, or internet access expenses for services which began before February 15, 2020
- Group health insurance premiums and other healthcare costs
Be careful here. In order for the amounts to be forgiven, you must maintain the save average number of employees for the first eight-week period beginning on the origination date of the loan as you did from February 15, 2019 – June 30, 2019 or from January 1, 2020 until February 15, 2020. If you don’t meet this requirement, the amount forgiven is reduced. You incur additional reductions if you cut compensation for employees who make under $100,000 by more than 25% as compared to the most recent quarter.
And of course there’s an exception to the exception: you won’t be penalized for a reduction in employment or wages during the period from February 15, 2020 to April 26, 2020, if you rehire employees that you previously laid off or restore any decreases in wages or salaries by June 30, 2020.
You apply for the Paycheck Protection Loan directly through your local lending bank. As a business owner, you must personally certify that your company qualifies as a small business. You can help yourself prepare by working with your local lender.
These programs can provide a significant boost to struggling businesses. You can use these loan proceeds to pay a variety of working capital – payroll, rent, utilities, etc.
The demand will be high, so it’s important to make sure you apply for the right type of loan for your business. Here are some other helpful tips that may come in handy:
Apply! If you need funding now, or think you may need it in the future, you might as well apply now. You’re under no obligation to take the loan. And as I mentioned, there are no guarantee fees, servicing fee or prepayment fees.
EDILs are based on working capital needs, so make sure you have a good sense of what those are.
You can apply for both types of loans, as long as they cover different expenses (not a duplicative purpose). This is also true if you’re pursuing other local or regional government assistance.
For the EDILs in particular, the SBA does not work with “loan packagers.” So, there’s no need to pay someone to put an application together for you. You can apply directly through the website.
Make sure to specify the economic loss as it pertains to COVID-19. There’s no need to fill out the physical damage part, if that doesn’t apply to you.
While both of these loans are widely available, there are still some companies that won’t have access to these loans. Cannabis companies, for instance, won’t qualify, as their business is still illegal on the federal level, despite being legal in 11 other states and DC. If that applies to you, you’ll have to find other funding.
Other provisions of CARES that may help your business include:
- An employee retention tax credit for employers subject to full or partial suspension of business due to COVID-19
- The ability to delay payment of employer payroll taxes
- Modifications for rules around net operating losses
- Modifications for rules around corporate AMT (alternative minimum tax) credits
- A temporary increase in the limitation on interest deductions imposed by the Tax Cuts and Jobs Act
As your LegalShield Provider Attorney we are here to help our Small Business Plan Members through these difficult times.
