The coronavirus pandemic is wreaking havoc on our economy. Schools, community centers, and businesses have closed in response to this public health crisis. As citizens do their part to prevent the spread of COVID-19, organizations are beginning to suffer from the widespread inactivity caused by self-quarantines, stay-at-home orders, and lockdowns.
Significant relief options are now available to small businesses through the CARES Act.
Since many of our customers qualify, we here at Weave want to make you aware of the options available to your business along with the steps you need to take.
- Figure out if you qualify for either the PPP or EIDL loan options available through the SBA.
- Determine which type of loan is best for your business.
- Apply for the loan that best fits your business needs.
We know that there is a lot of information to try to digest in this process. We have consolidated some information below to help make things clearer. If you still have questions after reading this article, Weave has a webinar scheduled for April 8, 2020 with industry experts to help answer any questions that you might have. You can register here.
To provide relief for individuals, families, and businesses dealing with the consequences of COVID-19, the United States federal government passed the Coronavirus Aid, Relief, and Economic Security Act on Friday, March 27. The CARES Act is a $2 trillion economic stimulus bill meant to help the country through the turbulence brought about by the current pandemic.
The bill includes a one-time direct payment of $1,200 to certain groups of qualifying taxpayers, a $250 billion expansion of unemployment benefits, $140 billion in appropriations to support the healthcare system, and $150 billion of aid to state, local, and tribal governments.
The two types of loan programs created or expanded by the CARES Act are both authorized by the Small Business Administration, or SBA and are to directly help small businesses in need.
The first type of loan is a new program called the Paycheck Protection Program, or PPP. It is a $349 billion fund dedicated to keeping employees of small businesses on the payroll despite shortened work hours and temporary closures. PPP loans function as part of the SBA’s existing Section 7(a) lending program.
The second loan program is an expansion of the already-existing Economic Injury Disaster Loan, or EIDL, program. This program provides more general relief to struggling businesses, including up to $10,000 in immediate funding once eligibility has been verified.
Below are additional details regarding these two loan programs and how to take advantage of them
Paycheck Protection Program Loans
PPP loans are administered by SBA-approved financial institutions. The maximum loan amount is the lesser of $10 million or 2.5 times the average monthly payroll costs in the 12 month period prior to the date of the loan. The interest rate for PPP loans is 4% or less. These loans have a maturity of up to 10 years and can be deferred 6 to 12 months.
The primary purpose of these loans is to maintain your current payroll and related benefits. They can also be used to make mortgage, rent, and utility payments. Wages for salaries over $100,000 per year are excluded from the program, as well as those receiving sick or family leave as part of the Families First Coronavirus Response Act.
Small businesses, meaning those businesses with less than 500 employees, are eligible for PPP loans, as well as private nonprofit organizations and veterans organizations affected by COVID-19. Hospitality and food industry businesses are also eligible at the level of individual locations and stores employing less than 500 workers.
No personal collateral is taken and no guarantees are required with this type of loan. Forgiveness is available for those businesses applying a majority of the loan (75%) to the retention of employees.
SBA-approved lenders begin processing PPP loan applications on Friday, April 3. The $349 billion fund is a finite resource, so loans will be distributed on a first come, first served basis. The funds are meant to provide relief for paychecks written between February 15, 2020 and June 30, 2020.
For more information on the PPP loan program, and how you can apply, download the Paycheck Protection Program Information Sheet here.
Economic Injury Disaster Loans
These loans are administered directly by the Small Business Administration as part of a previously existing program for natural disaster relief. The maximum loan amount is $2 million and interest rates are set at 3.75% for for-profit organizations and 2.75% for non-profit organizations.
An EIDL has a long term maturity of up to 30 years with a deferral period of 12 months in which interest accrues.
Under the CARES Act, eligibility for these loans has expanded to include small businesses of less than 500 employees, private nonprofit organizations, and small agricultural cooperatives.
While the maximum loan amount available through the EIDL program is lower than the amount available through the PPP, usage is broader and covers needs as variable as fixed debts, payroll and its related benefits, accounts payable, and other expenses.
Collateral may be taken on loans exceeding $25,000. As part of the CARES Act, the personal guarantees requirement is waived for loans less than $200,000.
Although the EIDL program does not provide the same forgiveness options as the PPP, it does make initial advances of up to $10,000 possible within a few days of your loan being processed. Loans are authorized based on credit scores. Tax returns are not required.
These loans are able to be processed right now through the Small Business Administration.
Our Webinar on Small Business Relief Options
Despite there being only two basic loan options for small businesses as part of the CARES Act, it’s still incredibly difficult to make a decision about which type of loan to take out, if at all. Business owners have to be cautious and prudent when taking action against the effects of COVID-19. Their choices impact employees, customers, and the future.
At Weave, we understand the gravity of the present situation. We also believe that with the proper resources, businesses can deal with coronavirus and be ready to face the future.
Our team has organized a webinar on April, 8 2020 at 10 AM dedicated to helping our customers learn about the small business loans available through the recent economic stimulus package. You are welcome to join live, and bring any questions that you would like to have answered. If that time and date don’t work for you, we will send out a recording after the fact. All you need to do is register and you will get an email of the recording after the webinar finished. The panel includes financial experts ready to answer all your questions about these loans and whether they’re right for your small business.
Who Will Be on the Webinar?
Alan Taylor – Chief Financial Officer, Weave
Brock Baker – Chief Executive Officer, Lendio
Samuel Orme – Managing Director, Bank of America Merrill Lynch
Kortney Osborne – Vice President of Marketing, Weave