If you’re a small business owner, COVID-19 and the related fallout is likely crippling your business. You’re wondering how you’re going to pay the bills, including your employees. You’re not waiting for the government to act, but you’re hoping it does and fast.
There is relief available and more on the way. The following programs could save small businesses on the brink.
SBA Economic Injury Disaster Loan Program
This program, administered by the U.S. Small Business Administration (SBA), is available now to small businesses and private, non-profit organizations located in declared disaster areas that are unable to meet obligations as they mature and pay ordinary and necessary operating expenses due to COVID-19. While this program is not new, and is available to businesses impacted by disasters other than COVID-19, it is being expanded and made more flexible to address the current crisis.
The program makes loans available on up to 30 year terms at a 3.75% interest rate, or 2.75% for non-profit organizations. To qualify, in addition to being located in a declared disaster area [all of NC is now declared a disaster area], your business must be a “small business.” To determine the size under which you will qualify as a “small business,” you’ll need to find your NAICS code (https://www.naics.com/search/). In making the loan, the SBA will consider credit history prior to recent issues and ability to repay. The loan cannot be used to refinance existing debt or make new capital purchases, but rather is meant to be a working capital loan to allow the same level of business as before. As for collateral, you’ll need to provide as much as you can. Subject to credit worthiness and ability to repay, SBA will lend up to $2,000,000 secured and $25,000 unsecured. Approval can be expected between 8 and 21 days.
Certain entities are excluded from eligibility, including (i) investment businesses; (ii) multi-level sales businesses; (iii) businesses engaged in speculative activities; (iv) public non-profits; (v) religious and political organizations; (vi) real estate development businesses; and (vii) life insurance companies.
The SBA Economic Injury Disaster Loan Program comes directly from the SBA without an intermediary lender. You can submit applications online at https://disasterloan.sba.gov/ela. As you might expect, the site is experiencing high volume and may be down from time to time. Keep trying. Once submitted, you’ll need to regularly check the message center for follow-up and to provide additional information as needed.
NC COVID-19 Rapid Recovery Loan Program
The Golden LEAF Foundation announced $15 million in funding to launch a rapid recovery loan program in response to economic losses related to Coronavirus (COVID-19). Golden LEAF funding will support the NC COVID-19 Rapid Recovery Loan Program by enabling loans to be made to eligible businesses for up to $50,000 with zero interest and no payments for six months. If not repaid in six months, the loan will automatically convert to a term loan. The NC COVID-19 Rapid Recovery Loan Program (https://ncrapidrecovery.org/) is managed by the NC Rural Center, a statewide nonprofit that has been supporting small business owners for more than 30 years.
$2 Trillion Stimulus - Paycheck Protection Program
While not yet a done deal, the Federal government is expected and the Senate has already passed a $2 trillion stimulus package this week, which will include relief for small businesses. The package will include a $350 billion loan program for small businesses (with the same criteria for SBA Economic Injury Disaster Loan Program loans) and business which employs no more than 500 employees. These small business loans will be available to pay rent, mortgage, and payroll expenses. Payroll expenses include salary, wages, and payments of cash tips , employee group health care benefits, retirement contributions, and covered leave. With respect to compensation, individual employee compensatino above $100,000 per year, prorated for the covered period is excluded. The size of the loans will equal 250 percent of an employer's average monthly payroll costs (as defined above), with a maximum loan of $10 million. Sole proprietors, independent contractos, and self-employed individuals defined as eligible in the Families First Coronavirus Response Act are all eleiglbe for loans.
The package also makes the proceeds of the loan eligible for forgivements to the extent used for payroll, interest payments on mortgages, rent, andutlities, if the business maintains its payroll. These provisions essentially turn the loan into a grant. That said, the mechanism for the loan forgiveness is not yet known. In addition to outright foregiveness provisions, there are provisions making the cost of participation minimal, including reduced fees, fee waivers, and automatic deferment of payments for one year with no prepayment penalties. No personal guarantee or collateral is permittted to be required, and the interest rates are not to exceed 4 peercent.
The loan program will be administered by the Small Business Administration, but will work through 800 existing SBA-certified lenders, including banks, credit unions, and other financial institutions. The Treasury Secretary would be authorized to expedite the addition of new lenders and make further enhancements to quickly expedite delivery of capital to small employers.
Even with the uncertainty surrounding this loan program, small business owners should consider starting the conversation with an SBA-certified lender.
Federal Reserve Bank’s Main Street Business Lending Program
Also on the horizon is the Federal Reserve Bank’s (FRB) Main Street Business Lending Program. Through this unprecedented program, the FRB is considering relief to what it calls “small to midsize” businesses through direct loans – without a bank or financial institution serving as the intermediary. The distinction between the two could prove critical to businesses too large to be classified as small businesses under the stimulus package, but that still need relief. Joe Brusuelas, the chief economist at RSM, expects businesses with revenues less than $5 billion to be eligible. Brusuelas also expects loans under this program to feature very low interest rates in the 2.25% range and five-year terms with quarterly payments. Like the stimulus package (which will likely provide the funding needed for the Main Street Business Lending Program), details are still not official.
If you need help navigating today’s unique challenges and considering the options available to you, give us a call.
Note: This post will be edited as further details about the programs discussed become available.