It’s no secret, small businesses are hurtin’ right now. Thankfully there are some financial resources for small businesses during this pandemic!
I’ve invited Justine Lackey from Good Cents Bookkeeping to collaborate for this bonus guest post. You may remember Justine from Episode 31: Building Good Money Habits for Your Business. She and her team have been knee-deep in researching all of the financial resources and loan options available to the small business community right now. It’s an overwhelming time and these financial resources are not only confusing but they seem to be rapidly changing and so I hope this information helps you navigate the options. Also, be sure to join Justine’s pop-up Facebook group for small business owners during this COVID-19 crisis to get daily updates and ask questions.
By Justine Lackey
If you’re a small business owner, there’s no doubt your mind is spinning right now.
The world has gone COVID-crazy, and where does that leave us? Especially when many of our businesses can no longer run as normal.
Right now, the government has provided businesses with two options for financial support. I’m sure you’ve heard of them by now: The Paycheck Protection Program (PPP), and the Economic Injury Disaster Loan (EIDL).
While the PPP did run out of funding in less than two weeks, and the EIDL suspended applications as well, as of last week, an additional $370 billion has been approved for both loan programs. While the PPP has resumed applications, the EIDL is still suspended. But keep your eyes peeled for when it reopens.
One thing we’ve learned is that these programs move FAST, and if you’re not ready and informed, you could miss your chance for necessary funding for the second time in a row.
Please note, for both loans, you’ll need to prove you have been in business BEFORE 2/15/20. You do not have to have been in business for a full year.
I’m gonna break these down for you in a nutshell, so we know what we’re workin’ with:
The Economic Injury Disaster Loan
This is a disaster loan available through the SBA. These loans are always available after certain qualifying events that negatively impact your business (like natural disasters); COVID-19 is now considered a qualifying event. Here’s what you should know:
- It’s available to any business with under 500 employees
- Previously the loan had been up to $2 million with terms up to 30 years; recently the SBA has indicated that they won’t be able to provide loans of this size due to the amount of need.
- Rates are set at 3.75% interest (2.75% for non-profits) with terms up to 30 years.
- The EIDL includes an advance of UP TO $10K.
- The EIDL can be used for any business expenses
- It can be approved based solely on credit score
- (I’ll be real with you, my team has been on the phone with the SBA multiple times, and it’s a little unclear who gets approved and who doesn’t for these loans. My advice is to be as nice as possible to whomever you talk to!)
Answers to EIDL FAQ’s:
- Yes, there is a $10,000 “forgivable” advance available to your loan when you apply.
- The small business community keeps calling this advance “free money,”… let’s just note, no money is ever free. If you also apply for the PPP, your advance for your EIDL is then not forgiven; it’s applied to the forgiven portion of your PPP. I’m watching this one.
- Parameters have changed on this. The Advance now provides $1,000 per pre-disaster employee (those existing prior to 2/15/20), with a maximum of $10,000.
I’ve created a Guide to the EIDL Application as a free download. It’s full of the documents you’ll need to have as well as some helpful tips as you go through the application.
The Paycheck Protection Program
The PPP was a $349 billion measure put into place as part of the CARES Act. The loan is available through SBA-approved lenders (like your bank). Independent contractors, self-employed individuals, AND small businesses are eligible to apply. Here’s what you need to know:
- Available to business with less than 500 employees.
- This loan is geared towards protecting your employees and is potentially fully forgivable if you use at least 75% for payroll costs (these include salaries, commissions, tips, state + federal payroll taxes, health insurance costs, retirement plan costs, paid time off benefits)
- You also must maintain all of your pre-disaster employees for 8-weeks from the date of loan origination.
- If you have furloughed them, you need to bring them back onboard by 6/30/20.
- The loan is up to $10 million calculated by 2.5x your monthly payroll (this will need to be calculated using your payroll information and/or tax returns)
- Payments are deferred for up to 6 months, with 1% interest and a two-year term. But if used correctly, they are forgivable anyway.
- There are no requirements for collateral or guarantees.
Answers to PPP FAQ’s:
- Yes, you can apply to both loan programs. But you cannot use the funds for the same things. You will need to prove this. Make sure you have a solid bookkeeper or open up a separate bank account to keep appropriate track of your funds.
My team and I have also made a free PPP Checklist download with all the documents we suggest having on-hand when you go to apply for the PPP. This document includes a list of online lenders if you are unable to connect with a bank to apply.
If any of this brings up more questions, I’ve made a pop-up Facebook group for small business owners during the COVID-19 crisis, where my team and I are posting daily resources, updates, and answering questions.
Stay well! And I hope this helped keep you informed. — Justine Lackey + The Good Cents Team