Accessing Federal COVID-19 Emergency Small Business Loans

COVID-19: A National Disaster

The ongoing Coronavirus Disease 2019 (COVID-19) pandemic has proven to represent a severe crisis of world-wide magnitude. In the United States, the COVID-19 emergency has produced serious economic hardship for many small businesses and individuals nationwide. In response, the Small Business Administration has initiated an emergency effort to provide easy access to small business loans.

Many of the Federal, State, and local public health measures being implemented to minimize the public’s exposure to the virus have caused dramatic decreases in customer traffic. This is resulting in business closures due to lack of revenue piling on top of the mandated shuttering of restaurants, bars, gyms, and “non-essential” businesses. The net effect is the most sudden economic shut down and largest unemployment shock wave in American history.

On March 13, 2020, President Trump declared that the pandemic warranted an emergency declaration for all states, territories, and the District of Columbia. This is the first time in American history that a virus or pandemic event has been defined as a national emergency and disaster.

Since that time, the United States’ government has worked quickly to pass several emergency legislation packages designed to support the fight against COVID-19 and provide relief for businesses and workers affected by lockdown orders and the general economic shutdown. The new legislation expands your possibilities for accessing various types of small business loans under one or more government programs.

Economic Injury Disaster Loans

The Small Business Administration’s (SBA) Economic Injury Disaster Loan (EIDL) program is the first lifeline for American businesses, homeowners, and renters caught in regions affected by officially declared disasters. The nationwide spread of the pandemic and President Trump’s corresponding disaster declaration mean that businesses in every American state and territory are now eligible to apply for EIDLs.

The low-interest small business loans have always been available, and are generally used to cover the repair and replacement of physical assets damaged in a disaster or small business operating expenses after a declared disaster. Businesses and cooperatives with up to 500 employees, private non-profits, sole proprietors, and independent contractors among others are eligible. Under the recently-passed CARES Act, $10 Billion has been allotted for COVID-19 EIDLs.

Because of COVID-19, a streamlined application process is in place, as are Economic Injury Disaster Loan advances of up to $10,000. As economic hardship deepens, the potential for social unrest rises, and President Trump is making preparations to call millions of National Guard members to duty. You should not discount the possibility of needing repair as well as operating funds, and it is likely that EIDL loans will be easier to get than the Paycheck Protection Program (PPP) loans described below.

The CARES Act: Coronavirus Aid, Relief, and Economic Security

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) signed into law by the President on March 27, 2020 is intended to provide emergency assistance and health care response for individuals, families, and businesses affected by the pandemic. Under the Act, the Small Business Administration (SBA) was granted the authority to modify existing small business loan programs and the funding to establish a new loan program aimed at supporting small businesses that have been adversely affected by the COVID-19 emergency.

Under the new program, during the covered period beginning on March 1, 2020 and ending on December 31, 2020, “any business concern, private nonprofit organization, or public nonprofit organization which employs not more than 500 employees shall be eligible to receive a loan made under section 7(a) of the Small Business Act (15 U.S.C. 636(a)), in addition to small business concerns.”

The new loan program launched on April 3rd, 2020, on a first-come, first-serve basis. Some of the participating lenders began accepting applications on launch day, while many others were not ready to do so for a variety of reasons. Demand is expected to greatly exceed current funding levels. That said, it is possible that the program will be expanded and extended.

There is a very important caveat that must be noted here: loans must be accessed via an existing small business banking relationship – only those companies that already have a lending relationship, i.e., an outstanding loan or credit arrangement with a given bank are, as of this moment, able to apply for the rescue funds. For example, see the clip below taken from the Bank of America website on April 3, 2020.

BOA Screen shot

Small Business Loans Under the Paycheck Protection Program

The Paycheck Protection Program (PPP) is a new product temporarily added to the SBA’s 7(a) Loan Program by Section 1102 of the CARES Act. Under the PPP, $349 Billion dollars has been provided to the SBA for the purpose of providing loans to small businesses, with the application window open through June 30, 2020.

Lending criteria have been relaxed in order to offer businesses expeditious relief, and lenders will accept borrower certifications in determining borrower eligibility and the intended use of loan proceeds. All loans will be 100 percent guaranteed by the SBA, and the loans may qualify for full principal forgiveness under Section 1106 of the Act. Lenders may accept specified documents from the borrower in order to determine qualifying loan amount and eligibility forgiveness.

The two basic eligibility criteria are:

  1. The business was in operation on March 1, 2020; and
  2. had employees for whom the borrower paid salaries and payroll taxes.

The maximum loan amount will be the lessor of:

  1. Four times the applicant’s average total monthly payments by for payroll, mortgage payments, rent payments, and payments on any other debt obligations incurred during the 1-year period before the date on which the loan is made. In the case seasonal employers, the average total monthly payroll period will begin March 1, 2019 and end June 30, 2019.
  2. $10 Million dollars.

Loan proceeds may be used for:

  • payroll support, including paid sick, medical, or family leave, and costs related to the continuation of group health care benefits during those periods of leave;
  • employee salaries;
  • mortgage payments;
  • rent (including rent under a lease agreement);
  • utilities; and
  • any other debt obligations that were incurred before the covered period.

Another important contingent that small business owners need to note is that mandates included in H.R. 6201: Families First CoronaVirus Response Act must be adhered to. That Act requires employers with fewer than 500 employees and government employers to:

  • Offer two weeks of paid sick leave through 2020.
  • Provide up to 3 months of paid family and medical leave for people forced to quarantine due to the virus or care for family because of the outbreak.

Beyond the effects of COVID-19, this Act immediately resulted in sudden job loss for millions of workers. In fact, before the Act was approved, the National Federation of Independent Business (NFIB) pointed out in a letter of opposition that “The bill would impose potentially unsustainable mandates on small businesses, hurting not helping the backbone of our local economies.” Small business owners hoping to take advantage of the CARES emergency small business loans need to be ready to handle the requirements of the Families First Act.

Funding Your Small Business During the Coronavirus Crisis

Despite the various catches involved, there is no question that a massive supply of money is being pushed out with easy access terms for most small businesses and even self-employed individuals. You should definitely make an effort to get your hands on some of it because it is quite likely that blanket forgiveness terms may be applied later. The condition of our country at that time does not bear thinking about, but that is a subject for another article.

Unless you are lucky enough to be an existing customer of Bank of America, Chase Business banking, or one of the few other lenders who are up and running with the application process for the CARES Act small business loans, the SBA EIDL loans may be your quickest, easiest route to getting funds as soon as possible. Which may still involve a wait given the unprecedented demand and the fact that there are around 30 million small businesses in the United States while the SBA processes 800,000 applications in a busy year.

These are unquestionably trying times, but here at Wodu Media we have learned that the constant and often rapid change businesses face in the digital age is best countered with flexibility and creativity. If you need a consultation on moving toward e-commerce and remote work, or a fortification of your company’s online infrastructure, get in touch with us.

We are moving into a new era in which the capability to communicate, market, conduct business, and work digitally is going to be an increasingly dominant factor in success. We are here to help so contact us by chat, email, or phone (800-909-WODU) at any time.