April 27, 2020 | Last Updated on: July 20, 2023
In the wake of the COVID-19 public health crisis, the government has acted decisively to help small business owners. Through executive orders and massive economic stimulus bills like the CARE Act, eligible business owners hurt by the coronavirus pandemic have the chance to secure the working capital and financial assistance that they need to stay afloat.
The Small Business Administration (SBA), in particular, has been granted authority by the federal government to provide up to $377 billion dollars in emergency business loans and grants through the Paycheck Protection Program (PPP), the Economic Injury Disaster Loan (EIDL) program, and the EIDL 10K Advance program. These loan programs are designed to provide coronavirus aid to struggling small businesses that need working capital and economic security to get through the crisis. Both programs offer repayment deferral, at least partial loan forgiveness, and flexible application processes.
Time is of the essence. Small business owners should apply for as much capital as they can before these various loan options reach their deadlines. We’ve broken down the details of the programs and the documentation needed to successfully apply to these programs.
The Paycheck Protection Program has $349 billion dollars allocated towards guaranteeing forgivable loans for small businesses. The loan proceeds are meant to be used by small businesses to cover up to 8 weeks of payroll costs (including things like employee salaries, cash tips, and even retirement benefits!), and can also be used to pay some rents and utilities. Small business owners can request a loan amount of up to 2.5x their average monthly payroll costs when applying for a PPP loan.
Average monthly payroll can be calculated in one of two ways:
PPP loan terms charge an interest rate of 1% and the maximum repayment period is two years. Repayment can be deferred for up to six months.
Businesses and nonprofits are eligible for PPP loans if they were operational on February 15th, 2020 and can demonstrate economic injury resulting from the COVID-19 pandemic.
According to documentation from the Treasury, all small businesses are eligible to receive funding. This means that any small business with 500 or fewer employees can, and should, apply for these loans. The following types of businesses with 500 or fewer employees are also eligible:
The PPP loans are also potentially 100% forgivable. The forgiven amount of a PPP loan depends on whether or not a small business lays off workers and how they use the money they received.
The PPP application for small businesses and sole proprietorships was opened on April 3rd. On April 10th, another PPP application was opened for independent contractors and self-employed individuals.
Small business owners can apply to any existing SBA 7(a) lender or through any other participating financial institution. The SBA recommends that you contact your local bank to check to see if they are participating.
Business owners can either apply directly through their lender of choice or by using this form with any participating lender. The form requires that you report the following:
Business owners should be prepared to furnish documentation that verifies your calculation of average monthly payroll costs.
The SBA recommends that you prepare the following:
Independent contractors and those who are self-employed should also include the following:
In general, any and all documentation that you can provide that gives your lender a comprehensive verification of your payroll costs will smooth the process of obtaining funding. If you need help preparing these documents, consider the following options:
The Economic Injury Disaster Loan program (EIDL) is an existing program administered by the SBA that is activated during times of crisis meant to provide working capital. The EIDL program, through cooperative efforts between state governments and the Trump Administration, has been widely deployed across the United States. The CARES Act funneled an additional $10 billion dollars into its accounts to keep up with high demand.
The funds provided through the EIDL program can be used for a much wider variety of business costs, while the PPP focuses on payroll costs. According to the SBA, EIDL funds can be used to cover “fixed debt payments, payroll, dealing with accounts payable, and any other bills that can’t be paid due to the crisis”. EIDL funding can be an excellent option for small business owners who are in need of relief to cover things like debt obligations, mortgage obligations, large utility payments, and other bills.
Small businesses can request up to $2 million. The loans charge a 3.75% interest rate and the repayment period can last up to 30 years. Loan payments can be deferred for up to a year.
Businesses and nonprofits eligible to apply for the EIDL program must have been in operation on January 31, 2020, be in a “declared disaster area”, and have experienced “substantial economic injury” as a result of the COVID-19 pandemic.
The SBA defines substantial economic injury as a business being “unable to meet its obligations and to pay its ordinary and necessary operating expenses.”
Businesses that qualify for EIDL funding include:
The only portion of the EIDL program funding that is forgivable is the emergency 10K advance, which we will discuss in more detail below. The rest of the loan is not forgivable.
The EIDL program and application have been up and running since early March. Unlike the PPP, the EIDL program is administered directly by the SBA, so there’s no need to connect to an affiliated SBA lender. To apply, visit the SBA EIDL website.
You can also complete a paper application that can be sent to the SBA’s processing and disbursement center:
U.S. Small Business Administration Processing and Disbursement Center
14925 Kingsport Road
Fort Worth, TX 76155.
The SBA West Virginia District Office has a great walkthrough guide that provides instructions for completing the application and solutions for common problems.
The SBA released an updated comprehensive guide detailing the EIDL program and the required documents needed for a successful application.
The basic filing requirements ask that you include the following documents in your applications:
EIDL loan applications may also request that you provide a current year-to-date profit-and-loss statement and a report of monthly sales figures (SBA Form 1368).
Instructions for how to fill out all of the required forms can be found on the SBA’s website.
The additional funding for the EIDL program from the CARES Act has also set up an emergency grant program that provides up to $10,000 that does not have to be repaid. The amount of the grant awarded to a small business depends on the number of employees. The grant will provide $1,000 for each full-time person that you employ, up to $10,000.
In order to qualify to receive an EIDL 10K advance, you have to fill out an EIDL application and indicate that you are interested in the emergency grant.
Getting the 10K advance requires no additional documentation or any separate applications outside of the normal EIDL application.
For businesses looking for quick relief, we recommend applying to the EIDL program and indicating interest in the 10K advance program. Basically, any business that has been hurt by the COVID-19 crisis should be applying for disaster loans so that they can quickly access up to $10,000 in grants.
Small businesses with large payroll liabilities should also be taking advantage of PPP loans to retain employees at a VERY low cost.
While both loan programs offer streamlined application processes, the EIDL program application will require less time and effort to complete and has experienced fewer problems and disruptions.
Norbertus Robben, a private practice physician in the Greater Philadelphia area, spoke to the issues inherent in the current state of the PPP application: The PPP application saw a delayed and chaotic start with numerous technical SNAFUs. This included system overloads and crashes, or the bank’s deliberate shutting off the portal to prevent just that, even while people were in the midst of it. Timing-out with deletion of all input when scrambling to produce an unexpectedly needed documentation also occurred. The EIDL application was much smoother, and I was able to get confirmation of my application very quickly.”
In either case, coming to the (virtual) table prepared with the necessary documentation will speed up the process of securing funding through either program.
