How small businesses can get money from the stimulus package

How small businesses can get money from the stimulus package

Amanda Northrop/Vox

Here’s how to access the $360 billion in loans and grants that the CARES Act allocates for small businesses.

There’s a significant amount of money — $377 billion — allocated to support small businesses in Congress’s latest coronavirus stimulus package. But figuring out exactly how to access it can be somewhat confusing.

Vox is here to help.

The funds from the CARES Act, which President Donald Trump signed into law on March 27, are divided among three small-business programs that offer forgivable grants and loans, as well as loan deferral. (These Small Business Administration programs also apply to nonprofits that meet the necessary size requirements.)

In this guide, we’ll focus on the two that allow businesses to apply for new loans, though the full menu of relief options is available on the SBA’s website. The first is the Paycheck Protection Program (PPP), which enables organizations to obtain up to $10 million in loans that are 100 percent forgivable if they do not lay off any employees or if they rehire employees they’ve already laid off.

The second is the Economic Injury Disaster Loan Program (EIDL), which includes a $10,000 grant that businesses can apply for and which they do not need to pay back. The rest of the EIDL loan, which caps out at $2 million, is not forgivable but can be more flexible than PPP in the types of expenses it covers.

Experts tell Vox that it’s possible for businesses and nonprofits to apply to both — and that they should do so fast. “We encourage you to apply as quickly as you can because there is a funding cap,” reads a statement from the Treasury Department. Since both programs also have a limited amount of funding, applying sooner is also important in case their allocated funding is fully used.

Currently, the EIDL application is already live and accessible here. The PPP application is scheduled to go live on April 3, and earlier this the week the Treasury Department released an example of what it would look like.

This guide is intended to give a broad overview of both programs, but for specific questions, organizations can reach out directly to the Small Business Administration via a new 24/7 phone help line: 1-800-659-2295. Businesses are also encouraged to connect with advisers at small-business development centers, women’s business centers, and SCORE, who are available to provide free guidance. (Contact information for the closest regional advisers can be found on their websites.)

Let’s start with what’s included in the bill

The Paycheck Protection Program and the Economic Injury Disaster Loan Program are the two main options small businesses and nonprofits have to obtain financial support during the coronavirus outbreak. (It’s worth noting that organizations can receive both loans and that an EIDL loan can also be refinanced into a PPP loan.)

  • The Paycheck Protection Program (PPP): The bulk of the small business stimulus funds in the CARES Act, roughly $349 billion, is dedicated to establishing the Paycheck Protection Program, which is intended to guarantee businesses the loans they need to cover eight weeks of payroll, along with some utility and rent costs.

If businesses keep employees on payroll or rehire them by June 30 after they’ve been laid off, these loans could be fully forgiven. Businesses are able to request 2.5 times their average monthly payroll costs for this loan.

Organizations can apply for PPP by calling their banks and other lenders directly.

  • Economic Injury Disaster Loan Program and Advance (EIDL): There’s $10 billion in the stimulus bill that is allocated for the EIDL, a program that has existed for some time.

This money will go toward two things: It sets up a grant program that would provide a $10,000 emergency “advance” that businesses won’t have to pay back, and it funds low-interest loans organizations can use to cover operating expenses, though they will have to repay these funds. The loan amount that organizations can request will be based on the amount of “economic injury” that they have sustained because of the coronavirus.

Businesses and nonprofits can apply for the EIDL directly on the Small Business Administration website.

When do applications open and when can I expect relief?

The EIDL application is already up and running, while the PPP will go live on Friday, April 3, for small businesses and nonprofits. The PPP application will go live on Friday, April 10, for independent contractors and self-employed individuals.

There is more uncertainty right now around the PPP because it’s an entirely new program the SBA is trying to get off the ground. Treasury Secretary Steven Mnuchin has said that the goal is same-day approval for loans, but it’s not yet clear how quickly the entire effort will be fully functional, and banks have raised concerns about the rushed rollout.

Still, experts urge small businesses to begin reaching out to their banks — which will be in charge of approving PPP loans — so that institutions are aware of the interest and can alert organizations promptly once the program is officially underway.

The EIDL Program, meanwhile, is already actively fielding applications, and the $10,000 grants that are part of it are likely the fastest way for businesses to obtain relief at this point. If a business is approved for these grants, it will be able to receive them within three days of approval, according to the SBA. Any business or nonprofit that applies for an EIDL loan can indicate that it is interested in this emergency advance, and organizations can still receive it even if they aren’t approved for the full loan.

“Businesses applying for EIDL loans are eligible for an emergency advance of up to $10,000 that does not need to be repaid,” Michael Chasalow, the founder of the USC Small Business Clinic, told Vox. “It seems that a business in need of immediate cash should pursue this option.”

Below is what we know so far about how to apply to both programs. We’ll keep updating this guide as more information is released.

First, determine eligibility

The first step for companies and nonprofits interested in these programs is to figure out whether they’re eligible for these specific loans, which are predominantly focused on helping organizations that have suffered hardships because of the coronavirus outbreak.

In addition to meeting the size standards that are set by the SBA, businesses and nonprofits need to show that they’ve been negatively affected by the coronavirus.

Businesses and nonprofits eligible for the PPP program are required to have been operational on February 15, 2020, and to demonstrate that the economic fallout from the coronavirus has hurt them.

They include:

  • Any business with 500 or fewer employees
  • Any 501(c)3 nonprofit that has 500 or fewer employees, or otherwise meets the SBA’s size requirements
  • Restaurant, hotel, or other business that’s categorized under “Accommodation or Food Services” that has 500 or fewer employees at each of its independent locations
  • Tribal businesses and 501(c)9 veterans organizations
  • Independently owned franchises
  • Self-employed workers, independent contractors, gig workers, and sole proprietors

Businesses and nonprofits eligible for the EIDL program are required to have been operational on January 31, 2020, and to have experienced negative economic effects because of the coronavirus crisis.

They include:

  • Any business with 500 or fewer employees
  • Any private nonprofit that has 500 or fewer employees — or otherwise meets the SBA’s size requirements
  • Sole proprietorships and independent contractors
  • Tribal businesses, cooperatives, and employee-owned businesses

Next, figure out which loan makes the most sense right now

Organizations will have to evaluate which loan program makes the most sense for their immediate needs, though multiple experts told Vox there’s no harm in applying to both of them.

In fact, this move is encouraged to make sure that businesses have more options — as long as they don’t use the two loans for the same purpose. (An EIDL loan could not be used to pay employees for the month of March if a PPP loan was already being used to do that, for example.)

The focus of the two programs, ultimately, is slightly different.

Under PPP, the loans are predominantly aimed at covering payroll costs (up to $100,000 per employee) but can be used to address other expenses as well, including utilities, rent, and interest on mortgage payments. Loans used to cover these costs are 100 percent forgivable at the end of the eight-week period during which they are used, but if the money is used for other expenses, that portion of the funds will not be forgiven.

Under EIDL, the grants and loans can be used for a broader array of costs, including rent and mortgage payments, salaries, workers’ paid leave, and the business’s operational needs. Because small business owners don’t have to worry about as many rules around loan forgiveness, there’s slightly more flexibility regarding these funds.

If a business or nonprofit is looking for a more rapid influx of cash, the EIDL route — which includes quick approval of the $10,000 emergency grant — could be the best first step.

“Everyone should be applying for the disaster loans, that’s where there’s a potential for $10,000 in grants, as soon as the provision gets authorized,” says Cynthia Wikstrom, the campaigns director for the Main Street Alliance, an organization focused on advocating for small-business interests.

The big difference between the two programs is that the PPP loans are entirely forgivable if companies meet a specific set of requirements, while EIDL loans (except for the $10,000 grant) are not. The cap for PPP loans is also higher at $10 million per organization, while the EIDL loans cap out at $2 million.

There are two separate processes for applying for these loans

Applications for these loans are expected to go through two different channels.

  • To apply for the EIDL loan and the $10,000 grant: Small-business owners and nonprofits can apply directly with the Small Business Administration at this website: https://covid19relief.sba.gov/#/. When small businesses submit their applications for the EIDL loan, they can indicate they are interested in the emergency grant at the same time.
  • To apply for the PPP loan: Organizations can call their current bank or lender directly. At this point, banks are just beginning to accept applications, and calling now to indicate interest in the loan can help businesses get in the queue quickly. The Treasury Department has shared information about what the application will look like.

All 1,800 banks that currently participate in the SBA’s 7(a) loan program are expected to participate in the PPP option also, and the Treasury Department is poised to approve additional lenders in the coming weeks.

Participating institutions already include hundreds around the country such as Bank of America, TD Bank, and Bank of the West. A more comprehensive list of banks that currently offer 7(a) loans can be found at the SBA website. In order to move the process along quickly, SBA is not expected to be involved in the approval process, and banks will be able to move forward with candidates independently.

Businesses and nonprofits need to be prepared to provide information about their payroll costs

The requirements across the two programs differ slightly, though both have relaxed the need for a personal guarantee of the loan:

  • PPP: Businesses are able to obtain 2.5 times their average monthly payroll costs for this loan, up to $10 million per organization. Costs that can be included as payroll costs include worker salaries, paid leave, health care benefits, commissions, and tips.

Average monthly payroll costs will be calculated using either monthly costs the business experienced from February 15 to June 30, 2019, or average monthly costs the business experienced from January 1 to February 15, 2020, if the business did not open until this year.

Businesses should begin preparing documents that demonstrate their monthly payroll and operational costs including payroll tax filings and rental contracts.

  • EIDL: There are no personal guarantees needed for loans less than $200,000, according to Forbes. Businesses should have documentation ready to show their operating expenses and revenue.

Be aware of the terms for loan forgiveness and for repayment

Components of both the EIDL offering and the PPP program are entirely forgivable, and each offers its own unique terms for repayment, which businesses should keep in mind as they are weighing the two.

PPP Terms

The PPP loans are 100 percent forgivable, depending on whether businesses lay off workers and how they use the money.

  • The loan will be completely forgiven if businesses do not lay off workers at all or if they rehire workers by June 30, 2020.
  • If a business lays off workers and does not rehire them, a portion of the loan will not be forgiven. If a business reduces the wages it pays out to a worker by more than 25 percent during the time that it is using the loan, part of the loan will not be forgiven.
  • If the loan is used for costs that are not approved by the bill, those portions will also not be forgiven and will have specific repayment terms.
  • Repayment could be deferred for six months and will have an interest rate beginning at 1 percent. The maximum term of repayment is two years.

EIDL Terms

  • The $10,000 EIDL grant that businesses and nonprofits can apply for is forgivable and can be used for a wide range of business needs.
  • Aside from the $10,000 grant, the rest of the loan is not forgivable.
  • The loan will have a 3.75 percent interest rate for small businesses and a 2.75 percent interest rate for nonprofits, and repayment can be deferred for six months. The maximum term of repayment is 30 years.

Author: Li Zhou

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