Published June 19, 2020
More than three months since the pandemic upended life in the U.S., the stakes are high for business owners and the economies they support. The deadline for Paycheck Protection Program applications is June 30. Given the uneven situation for many entrepreneurs, here’s a fresh look at PPP, Economic Injury Disaster Loans, and other aid available.
Significant increases in new Covid-19 cases in Alabama, California, Florida, Texas and other states suggest the already tricky reopening situation is getting even harder for many entrepreneurs. The pandemic “poses acute risks to the survival of many small businesses,” the Federal Reserve warned in a monetary policy report released June 12. It described the current situation as “alarming,” noting that roughly half of small businesses entered the Covid-19 crisis with cash reserves sufficient for fewer than 15 days of operations without revenue. “The path ahead is extraordinarily uncertain,” the report said.
In other words, entrepreneurs need money to buoy their businesses that were disrupted after the pandemic prompted state and local governments across the U.S. to order nonessential businesses to temporarily close to slow the spread of the disease. So we’re taking a fresh look at government and private programs--grants, loans, and other aid--meant to help small employers and people who work for themselves.
If this is your first time applying for funding, consider getting help from a lender that will give you the time of day (we offer a few suggestions in our article “Not All Small Business Lenders Are the Same”), your local Small Business Development Center, volunteer network SCORE, or an advocacy group such as Freelancers Union, Main Street Alliance, or Small Business Majority.
Paycheck Protection Program (PPP)
Maximum loan amount: $10 million
Interest rate: 1%
Term: Two years if issued prior to June 5; five years if issued after June 5
Deadline: June 30
With $660 billion allocated to it by Congress, PPP is the big dog of the small business aid programs. It’s managed by the Small Business Administration and the Treasury Department, though the loans are made by participating lenders. PPP is distinctive because the loans are eligible to be forgiven if used for payroll, mortgage interest, rent, and utilities. The Federal Reserve estimates three-quarters of small businesses with employees have applied for PPP.
The SBA published revised loan forgiveness applications on June 16. The new forms, significantly different, “will hopefully make it much easier for many businesses to qualify for forgiveness,” says Brian Pifer, vice president of entrepreneurship at advocacy group Small Business Majority, which has about 65,000 members in its network.
Also, keep in mind that new legislation signed into law on June 5 changed PPP’s forgiveness rules. For your loan to be forgiven, your business needs to use 60% of the funds on payroll (before the new rules, you had to use 75%). The time period to use the money is now 24 weeks or the end of 2020, whichever comes first (before, recipients had only eight weeks). This Bloomberg Tax article describes some of the anxiety around the changes. Bookkeeping software provider Bench has produced explainers for self-employed individuals and employers trying to understand the forgiveness rules.
If you work for yourself and don’t have employees, the maximum PPP loan you can get is $20,833. You might not think you’re eligible for it because of the word payroll in the program’s name—“I just run my own business; I’m not on payroll”-- but it’s worth considering, says Pifer.
As of June 16, about $513 billion in PPP loans had been approved. It has more than $100 billion left to lend before the June 30 application deadline. PPP has been frequently criticized for its shortcomings and controversies, including for the Trump administration’s decision not to disclose borrowers’ names and loan amounts. Legislation was introduced June 18 to extend the June 30 deadline “to Dec. 30 or longer to apply for a forgivable PPP loan while creating a new option for a second loan for borrowers with 100 employees or fewer that have lost at least half their revenue due to the pandemic," Bloomberg News reports.
To apply to the existing program, start by finding a participating lender in Small Business Majority’s list of PPP lenders that it belives are accepting new clients or through the SBA’s lender search.
Covid-19 Economic Injury Disaster Loan (EIDL)
Maximum loan amount: $150,000*
Interest rate: 3.75%; 2.75% for nonprofits
Term: 30 years
Deadline: Dec. 31, 2020
You can apply to both EIDL and PPP but you can’t use the money for the same purpose. Unlike the PPP loans, which are made through participating lenders, the SBA makes EIDL loans directly. The loans aren’t forgivable, though you can get a grant of up to $10,000 ($1,000 per employee) from the agency. Confusingly, the agency calls the grants “Covid-19 EIDL advances.
After the program ran out of money, the agency stopped accepting applications, then reopened solely for agricultural businesses. Now the program is open to all again. It started accepting applications on June 15. An EIDL is worth considering as a cushion, says Pifer. “You can always accept the loan and then if things don’t rebound, pay it back, because there is a six-month deferment.”
Also keep in mind: People who work for themselves and have no employees are eligible for the EIDL loan advance—again, it is essentially a grant--of $1,000. There is no field on the application to designate a specific loan amount. “The SBA determines the loan amount based on economic injury and working capital needs using financial information provided by the business in the application, such as gross revenues, cost of goods sold, operating expenses, and lost rents,” agency spokesperson Carol Chastang writes in an email.
The program has $266 billion left in its loan fund and $8.5 billion in its advance fund, according to Chastang. As of June 12, the SBA had approved $90.9 billion in EIDLs and $10.7 billion in EIDL advances.
To apply for a loan or a grant (or both), go to this portal on this page of the SBA’s site. There is only one application for both the Covid-19 EIDL loan and the so-called loan advance of up to $10,000.
*The SBA removed the maximum loan amount and other information about the EIDL program from its website; it used to be $2 million. The agency declined to comment about why the information was removed from its site.
Another twist to traditional SBA loan programs
While PPP received a lot of attention and EIDL received some attention, another piece of the CARES Act legislation affecting SBA loan programs that could help you hasn’t attracted much, says Pifer: The SBA will pay six months of your principal, fees, and interest on existing and new 7(a), 504, and microloans made between March 27, 2020, and disbursed prior to September 27, 2020. These aren’t deferments; they’re full payments of principal and interest. “It’s an overlooked piece that doesn’t get a lot of attention but it’s definitely another viable option for folks,” Pifer says. To apply, start by reading this SBA debt relief explainer.
Main Street Lending Program
Loan amount: $250,000 to $300 million
Interest rate: Adjustable rate LIBOR (1-month or 3-month), plus 3%
Term: Five years
The Federal Reserve’s Main Street Lending Program launched on June 15. It will lend up to $600 billion, and is being run by the Boston Fed. Unlike PPP, Main Street loans can’t be forgiven. It’s intended to help businesses that were in “sound financial condition” prior to the pandemic maintain operations and payroll until conditions normalize, the Fed explains.
Given that the minimum loan is $250,000, the program won’t be relevant to most small businesses. “It’s more geared to medium-size businesses and for those businesses it might make sense,” says Pifer. Businesses need to apply through participating lenders.
To apply, start by reviewing the program to find a participating lender. Bear in mind that it’s early days (more details in this Bloomberg News article) and lenders are likely still evaluating the program.
Employee Retention Credit
This is a tax credit measure included in the CARES Act called the employee retention credit. It’s essentially an Internal Revenue Service tax credit of $5,000 per employee that employers with 100 or fewer employees can use in 2020. (Larger businesses can also use it but get less of a break.) Bear in mind that you can’t use both PPP and the tax credit, says Pifer.
You do have flexibility on when you use it. “If a company chooses not to claim the credit in one quarter, there is nothing to prevent it from claiming it in the subsequent quarter for qualified wages paid in that three-month period, provided the requirements to claim the credit are met,” this Bloomberg Tax article explains.
More information about the employee retention credit is available in this Bloomberg Tax article titled “Businesses Wary of Using Virus Tax Perk Absent More IRS Guidance” and this explainer from law firm Lowenstein Sandler.
Pandemic Unemployment Assistance
Pandemic Unemployment Assistance is the federal program that extends unemployment benefits to those not typically eligible like the self-employed. It makes up to 39 weeks of unemployment insurance benefits available. It’s the first time individuals who have traditionally been ineligible for these benefits can access them.
Trouble is, demand has been overwhelming the offices that handle claims, states administer the benefits differently, and many haven’t figured out how to get the money to PUA applicants in a timely manner. Freelancers Union offers a list of state offices that handle claims and a guide for what to do if your claim is denied.
State and local governments haven’t been sitting still. They’ve been setting up their own relief funds, tapping government money and private money. Some of the programs that ran out of money a few months ago are being reopened. “I think we’ll see more emerge once PPP runs out,” says Pifer. “I don’t think this problem of customers not returning is going away any time soon. There’s going to be a need for more relief.”
To locate programs, check with your state’s economic development office, your local Small Business Development Center, and Small Business Majority’s compilation of city, state and national emergency loans and grants, from Oakland, California to New York City to Iowa.
For more stories, strategies, and advice for Main Street business owners, check out the Bloomberg Businessweek Small Business Survival Guide.