It’s extremely challenging being a business owner these days. There is great anxiety and fear about how to navigate the next few months. And so much responsibility relating to staff, your clients, and maintaining the business, much less one’s own self and family. Even if you prepared for contingencies and slowdowns, no one could have foreseen going from 100mph to a full stop.
The key is fortifying, staying organized and making a plan. The average business has cash reserves to cover almost a month of expenses according to a study by JP Morgan Chase. But even if you have more reserved, one has to plan for contingencies as the Coronavirus outbreak has been unpredictable.
In the past week, the government passed 3 major stimulus bills totaling $2 trillion, and they are prepared to pass more. The Coronavirus Aid, Relief, and Economic Security (CARES) Act allots $10 Billion for Economic Injury Disaster Loans (EIDL’s) and $350 billion for Paycheck Protection Loans to help small businesses. This article will focus on the CARES Paycheck Protection Program and the EIDL’s. And more specifically cash, and how you can get the monetary help you need now to keep your business moving forward.
The good news is is that you’re resilient, and even though these days seem dire, the grit is there, you will pull through, like you have in the past, and like you will now.
The CARES Act’s Paycheck Protection Program Loan Guarantee are SBA backed small business loans through local lenders. According to the SBA, they are working with 18000 lenders to meet demand and plan to expand.
Here are the program details:
Loan forgiveness provisions are generous and are forgiven when the proceeds are used for any of these costs:
Be careful though. In order for the loan amounts to be forgiven, you must maintain the same 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.
There is 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 institution. As a business owner, you must personally certify that your company qualifies as a small business.
There will be very significant demand for this loan. The SBA is still working with local institutions to organize the process, but you can get ahead of the game by preparing your info with this checklist from the Chamber of Commerce and contacting your local lender.
The Small Business Administration’s (SBA) Economic Injury Disaster Loans (EIDLs) have always been available in the event of disaster. However, this is the first time a virus or pandemic event has been defined as a disaster, so everyone is affected.
Because of that declaration, businesses in every state and territory are now eligible to apply for Economic Injury Disaster loans. (If you applied before the declaration was made, you may have been rejected because SBA Disaster Loan Assistance was unavailable for Coronavirus related economic impact at the time.)
Here are the program details:
The EIDLs expanded provisions include:
The $10,000 emergency cash grants are particularly interesting. Applicants can get the emergency cash even if they don’t qualify for additional funds. Because lending decisions are based on self-certification and the applicant’s credit score, the review process should go quickly. CARES also waives the requirement that you be unable to obtain credit elsewhere. That means you can apply even if you already have a credit line.
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 have to 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?
Unfortunately, we don’t know yet. 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 this relief (and systems may be overloaded). Our advice: apply as soon as you can.
Both of 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. The key with these loans is not to duplicate expenses.
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.
One important caveat is the SBA and government are still ironing out the details, so things may change, though not drastically hopefully. No matter what get prepared now and begin organizing your finances to apply. And good luck and be well. These are dire times, but you will make it and strive with your business soon enough again.
If you have any questions or need assistance with requirements outlined in the bill, please contact Darren Wendroff at firstname.lastname@example.org.