Guide to COVID-19 LOANS

As of May 28, 2021, the Paycheck Protection Program has run out of funding. You can learn more about the PPP with our COVID-19 resource hub.

The COVID-19 pandemic has altered the mindset of many small businesses, at least temporarily. Whereas the goals of small businesses heading into 2020 may been about growth, for many it’s now about survival.

Business plans for 2020 that included applying for a loan for expansion have been put on hold, with many small business owners asking: “Will coronavirus prevent me from getting a business loan?”

The answer is no.  In fact, the CARES Act was signed into law in March to help small businesses get the funding they need.  The CARES Act allows for $376 billion in relief for American workers and small businesses.  This stimulus package also established a new temporary program – the Paycheck Protection Program (PPP) — to help the Small Business Administration (SBA) assist small businesses that were hit hard by the COVID-19 outbreak, and the resulting government-mandated lockdowns.

The CARES Act also makes it possible for businesses with bad credit or that have bad credit to be approved for COVID-19 loans. 

An attractive feature of the COVID business loans is loan forgiveness.  The total amount of loan forgiveness for a PPP loan will include payroll for employees who earn less than $100,000 in annual income, mortgage and rent obligations, utility payments and interest.  For employees who earn more than $100,000 in annual salary, only the first $100,000 will be included in the company’s loan-forgiveness bottom line.  Employees who live outside the United States are excluded from the total amount of the loan forgiveness.

Payroll costs include health-care benefits, retirement benefits and state and local taxes.

These coronavirus business loans are in addition to the existing SBA loan options, such as 7(a) loans, disaster and export loans, and add to the list of small business loans coronavirus options.  

What Coronavirus Business Loan Programs Are Available?

The SBA created a new temporary funding program to address the economic fallout of the COVID-19 pandemic:

    Under the terms of this program, the SBA will offer loan forgiveness if a business keeps all of its employees on the payroll at their normal salaries for at least eight weeks and if the funds the loan provides are used for payroll, rent, mortgage payments or utilities.  PPP was suspended briefly shortly after the CARES Act was signed into law when the initial $349 billion of funding was exhausted in two weeks, but was reinstituted on April 27 after Congress approved an additional $310 billion.
    The second round of PPP expired on June 30 with $130 billion in dedicated loan money left on the table.  But Congress extended the Paycheck Protection Program on July 1 for an additional five weeks through August 8.
    Small businesses can apply for a PPP Loan through any existing SBA 7(a) lender or through any participating federally insured depository institution, federally insured credit union or Farm Credit System institution.
    Borrowers that don’t already have an established banking relationship are advised to apply online or by phone rather than in person.  According to both the SBA and Treasury Department, online and phone applications are handled on a first-come, first-serve basis.
    This business loan COVID-19 application can be found on the Treasury Department resource page that’s dedicated to the CARES Act.  SBA-approved lenders can be found by entering your zip code into the appropriate field on the SBA website.
Other existing SBA loan programs have been expanded or have become more viable during the pandemic:
  • SBA Economic Injury Disaster Loans.  Access to Economic Injury Disaster Loans (EIDL) has been expanded as part of the SBA’s assistance program.  The SBA is now providing working capital loans of up to $2 million to small businesses and non-profits affected by COVID-19.
    The federal stimulus package relaxed the business loan for COVID-19 requirements for the EIDL program so that sole proprietors and businesses with less than 500 employees can qualify.  An EIDL can be approved based on the credit score of an applicant.  Applicants also don’t need to provide a personal guarantee for loans under $200,000, which means they don’t require collateral.
    How to Apply for an SBA Disaster Loan
    Small business owners can apply for an SBA Disaster Loan directly through  Applications for coronavirus business loans are also accepted through the mail or at its field offices.  The SBA opened its EIDL loan program to agricultural businesses on a limited basis.  Agricultural businesses can apply via a streamlined application form that can be found here.
    Applicants can also work all existing SBA lenders, who are providing business loans right now.  Small businesses who already work with a specific lender are advised to use that lender, as that’s the quickest way to get a loan application processed and approved.  Any existing SBA lender can be used.  The business loan COVID 19 application can be found on the Treasury Department website.  Applicants will need to provide payroll documentation to their prospective lender.
    Businesses can receive funds from both EIDL and PPP, but cannot use the funds for the same purpose.  The EIDL advance will be subtracted from the forgiven amount of the PPP loan.  But the PPP loan can be used to refinance the EIDL loan.
  • Economic Injury Disaster Loan Advance. On June 15, the SBA began accepting new applications for Economic Injury Disaster Loans and EIDL Loan advance from qualified small businesses and U.S. agricultural businesses.  This advance can provide up to $10,000 of economic relief to small businesses that are experiencing a loss of revenue due to the COVID-19 pandemic.
    The loan advance will not have to be repaid.  It’s not necessary for a small business to be approved for a loan in order to receive the advance but, if a small business does receive a loan, the amount of the advance will be subtracted from the total amount of the loan for which the business is eligible.  The deadline to apply for an EIDL and advance is December 16.
    More information can be found here.
  • SBA Express Bridge Loans. This pilot program can provide up to $25,000 to small businesses that already have an existing business relationship with an SBA Express lender.  These funds can offer short-term help to businesses that have suffered financial harm from the pandemic while they wait for approval of their application for a short-term SBA Economic Injury Disaster Loan.
    How to Apply for an SBA Express Bridge Loan
    Small businesses that are interested in an SBA Express Bridge Loan should contact the SBA lender with which it currently works.  Any existing SBA lender can help facilitate an SBA Express Bridge Loan.
  • SBA Export Express Loans. The SBA provides export loans to help businesses profit through exports.  This assistance involves helping businesses overcome challenges associated with international trade, such as COVID-19.  The Export Express loan program allows fast access to capital for businesses up to $500,000.  Businesses can apply for a line of credit or term note before finalizing an export sale or identifying new customers overseas.  Any existing SBA lender can help with the application process for an SBA Export Express loan.
  • SBA Additional Debt Relief. The SBA will pay six months or principal, interest and any associated fees for all current 7(a), 504 and microloans.  This also applies to all new 7(a), 504 and microloans disbursed before September 27, 2020.  This relief isn’t available for Paycheck Protection Program loans or Economic Injury Disaster loans.  It’s not necessary to apply for this relief as it will be automatically provided.
    For loans not on deferment, the SBA will start making payments on the next payment due date and will make a total of six monthly payments.  For loans that are on deferment, the SBA will begin making payments on the next due date after the deferment ends, and will make a total of six monthly payments.  For loans made after March 27, 2020, and fully disbursed prior to September 27, 2020, the SBA will start making payments with the first payment due on the loan and will make six monthly payments.

    The SBA has notified lenders of 7(a), 504 and microloans that it will make these loan payments.  Lenders have also been told not to collect any payments from the affected borrowers and, if a payment was made after March 27, to give the borrower the option of having that money refunded or applied to the loan to further reduce the balance.

What Are the Interest Rates on PPP and SBA Disaster Loans?

The interest rate on PPP loans is currently 1%.  The CARES Act caps PPP loans at 4%.  The interest paid on a PPP loan can be forgiven if the business keeps paying employees during the first eight weeks after it receives the loan.

SBA Disaster Loans are set at 3.75% for small businesses and 2.75% for non-profits.  Payments can be deferred for up to four years.

What Other Business Loans for Coronavirus Are Available?

The Main Street Lending Program (MSLP) was established by the Federal Reserve to support lending to small and medium-sized businesses that were in good financial shape before the COVID-19 pandemic.  The MSLP is an especially good loan option for small business owners whose business may be somewhat larger than a typical small business and doesn’t fit the eligibility requirements for loans from the PPP and EIDL programs.

The MSLP offers two different direct loan options:  the Main Street New Loan Facility (MSNLF) and the Main Street Expanded Loan Facility (MSELF).  Between these two options, the Main Street Lending Program offers $600 billion in loans for eligible businesses.

All Main Street loans are four-year loans with a minimum loan size of $1 million and a variable interest rate between 2.5 and 4%. Principle and interest payments on both loan options have an automatic deferment period of one year.

The main difference between MSNLF and MSELF loans are the type and size of the loan.    MSNLF loans are new loans originated on or after April 8, 2020, and cap out at $25 million.  MSELF loans expand on existing eligible loans and can go up to $150 million.

A business must meet the following requirements to qualify for a MSLP loan:

  • 10,000 or fewer employees;
  • Less than $2.5 billion annual revenue in 2019;
  • The business must have been created or organized in the United States, or under the laws of the United States, with significant operations in and a majority of its employees based in the United States; and
  • It cannot currently be in bankruptcy proceedings.

How to Apply for an MSLP Loan

Businesses may apply for MSLP loans directly through approved U.S. banks and insured depository institution.

In addition to the federal loan options, many states and municipalities have implemented their own financial assistance programs for small business hit hard by COVID-19.  Among these states are California, Colorado, Connecticut, Florida, Illinois, Kentucky, Louisiana, Minnesota, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Pennsylvania, Utah and Washington.  More state and local programs are being continually added.

For more information, click here.

What are the Requirements to Get a COVID Business Loan?

PPP Loans are open to small business and non-profits that meet the standard business-size definition of the SBA.  In addition, veteran organizations with less than 500 employees are eligible for loans under the PPP.  Self-employed individuals, independent contractors and sole proprietors are also eligible.  Churches can also qualify if they meet the other requirements of the CARES Act.

As for the type of businesses that don’t qualify for a PPP loan, an example is household employers, such as those who hire housekeepers and nannies.

To receive a loan, a business must have been in operation as of February 15, 2020.

SBA Disaster Loans are available to businesses that have less than 500 employees and are unable to pay their bills.

According to the SBA, both PPP loans and SBA Disaster Loans are designed to help any businesses for which “current economic uncertainty makes the loan necessary to support ongoing operations.”  Lenders determine whether a business can qualify, without the benefit of an independent SBA review.  While both the SBA and Treasury Department have taken potential borrowers at their word about their need for a loan, both agencies haven’t given much in the way of specifics regarding the criteria for who is eligible for a loan and who isn’t.

Under the PPP, for instance, the SBA allowed borrowers to testify “in good faith” about their need for a loan.  A standard requirement that businesses seeking an SBA loan must be unable to qualify for credit through other sources has been suspended by the CARES Act.

In one of the few specific declarations of business eligibility, the Treasury Department has stated that large, publicly traded companies with access to credit elsewhere probably won’t qualify for SBA loans, given that such organizations most likely couldn’t make “the required certification (regarding the need for a loan) in good faith.”

Franchisees of large corporations, however, are eligible for PPP loans – but only if they’ve registered as a franchisee and have been added to the SBA’s official directory.  According to the Treasury Department, a franchisee can apply for a PPP loan as an independent business if it appears in the directory.

According to an SBA regulation, businesses that are “engaged in any activity that is illegal under federal, state or local law” are also disqualified from receiving SBA loans.  Other factors that will lead to disqualification are the suspension or debarment of any owners of a company, if they are involved in bankruptcy proceedings or if they’ve previously received a small-business loan that has led to a net loss for the federal government.

Businesses that make fraudulent claims to a federally insured lender may face criminal penalties of up to $1 million.  After several large businesses received PPP loans – and later returned them — the Treasury Department says it will now audit all loans larger than $2 million.

PPP Loans and Sole Proprietors/Partnerships

According to the SBA, independent contractors and sole proprietors can calculate their payroll by adding “wages, commissions, income or net earnings from self-employment or similar compensation.”

In addition, the Treasury Department lists “owner compensation replacement” among allowable costs needed to qualify for a PPP loan.  Since the net profit of an independent contractor or sole proprietor is their payroll, their loan amount is based on their 2019 net profit divided by 12 to get an “average” monthly net profit.  This number multiplied by 2.5 is their PPP loan amount.

Partnerships are also eligible for PPP loans.  A partnership must submit a single application in which the self-employed income of all active partners count toward the payroll costs.

Can a Small Business Get a Business Loan When It’s Closed Due to COVID 19?

If a small business is closed due to COVID 19, but wants to re-open, it can apply for the same types of loan that a business that’s open can apply for.  For PPP Loans, salaries must be set at their pre-closing level.  An Economic Injury Disaster Loan can help with other expenses such as mortgage, rent, payments or other business-related debt.

Conversely, what happens if a business receives a PPP or EIDL and then goes under despite the assistance?  Since all PPP and EIDL loans up to $25,000 don’t require collateral or personal guarantees, the lender typically couldn’t seize any business or personal assets.  Still, default on the loan could have ramifications regarding the borrower’s credit worthiness.

Loans greater than $25,000, however, require collateral.  This means that the SBA can seize any remaining assets to cover the debt.  For disaster loans exceeding $200,000, the lender can target the personal assets of a business owner.

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