Small business owners can get some extra help from the stimulus bill.
This money will come in the form of forgivable loans, which Treasury Secretary Steven Mnuchin says lenders will be ready to start distributing by April 3.
Here’s what small business owners need to know about getting financial aid during the coronavirus pandemic.
Not all lenders may be ready by April 3
Chris Hurn, CEO of Fountainhead, a non-bank Small Business Administration lender, tells CNN that lenders may have issues getting up and running as they wait for technical instructions from government leaders. He expects many lenders to be overwhelmed by a surge in demand initially as well. Still, he added that most lenders should be operating with the loans by next week.
Any small business with less than 500 employees can apply
Generally any small business, including sole proprietorships, independent contractors, self-employed people, nonprofits and veterans organizations, can apply for the loans (though independent contractors will need to wait until April 10 to apply, per a Treasury fact sheet). Certain businesses in other industries may be eligible as well, and they should check the SBA’s size standards for specifics.
The loans help employers pay employees and overhead costs
The relief funds expand upon the pre-existing Small Business Association 7(a) loan program. Officially titled The Paycheck Protection Program, the loan is meant to be used on employee payroll. At least 75% of the money should go to payroll, with the rest going to other critical expenses — utilities, rent or mortgage — that owners need to stay in business for the next few months.
Loans top out at two months’ worth of average payroll
To calculate loans, lenders will use average payroll costs (including salaries, employee benefits, and taxes on compensation) from the last year. Loans are capped at two months of payroll plus 25% of that amount. Costs will also be capped at $100,000 for each employee.
Loans will be forgiven, but only if employers use them correctly
Employers need to maintain their full staff in order to have their loans forgiven. If employers have already let some employees go, they can still apply for loans as long as they can show they had employees as of February 15, 2020. They will then need to rehire their staff and make sure there is no decrease in their pay. For any funds applied to other expenses, borrowers will need to repay that portion of the loan over two years at an interest rate of 0.5% (repayment is deferred for six months, but interest can accrue during that time).
Funds will be available from participating lenders
According to the Small Business Association, “any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating” can issue loans, while other regulated lenders can seek approval to join the program as well. According to CNN, “Senior Treasury officials said they are also looking into allowing some fintech companies to make loans as well.” Just check with your lender to see if they are participating.
Owners need to provide payroll documentation
According to the Treasury, the only thing borrowers need to provide is payroll documentation in order to prove they are eligible for loans.
The program will run until June 30, 2020
The financial relief is meant to keep businesses afloat for a few months, but it’s not a permanent solution if the coronavirus crisis continues to affect the economy. Lawmakers may have to implement more economic legislation in order to help further down the line.
The SBA also offers a number of other relief programs
In addition to the Paycheck Protection Program, the SBA also offers a Disaster Loan Emergency Advance (an advance of up to $10,000 for “businesses that are currently experiencing temporary difficulties” because of coronavirus), Express Bridge Loans (which “Enables small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 quickly”), and SBA Debt Relief (which pays the principal, interest and fees on recent 7a loans for six months).