On December 27, 2020, the Consolidated Appropriations Act was signed into law. This new legislation expanded the Paycheck Protection Program and replenished funds for the EIDL program. This article has been updated to reflect the Consolidated Appropriations Act’s PPP and EIDL changes.
It’s no secret that the coronavirus (COVID-19) pandemic has taken a toll on businesses across the nation. And with many small businesses struggling due to government and state shutdowns, companies are seeing a decline in cash flow.
So, what’s a business owner to do during a crazy time like this?
To help rebound from the pandemic and get your business back on its feet sooner rather than later, explore coronavirus loan options for small business.
Coronavirus loan options to take advantage of
If your business is struggling due to the pandemic, don’t panic. There are plenty of relief measures in place to assist and support businesses. So, what options are available? Explore three coronavirus loan options below.
1. Paycheck Protection Program
The Paycheck Protection Program (PPP) is a relief measure created under the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act and replenished under the Paycheck Protection Program and Health Care Enhancement Act. The PPP provides forgivable loans to small businesses to help incentivize companies to keep employees on payroll.
On June 5, the Paycheck Protection Program Flexibility Act was signed into law. The act made a number of changes to the PPP.
Loans help small companies cover up to 24 weeks of payroll costs, interest on mortgages, rent, and utilities (was originally eight weeks). Current PPP borrowers can opt to extend their eight-week period to 24 weeks. New borrowers will automatically have a 24-week covered period that can’t extend beyond December 31, 2020. Payroll costs include salaries, wages, commissions, or tips ($100,000 max per employee), employee benefits (e.g., sick leave), state taxes, and local taxes. Borrowers must use 60% of the loan for payroll costs. Interest on mortgages, rent, and utilities must be from before February 15, 2020.
So, how much can each business receive? Good question. The Small Business Administration (SBA) states that applicants receive a loan equal to their average payroll costs from the last eight weeks. On top of the eight-week average, businesses will receive an additional 25%. The maximum loan amount per applicant is $10 million.
The low-interest PPP loan has a repayment plan of five years and a fixed interest rate of 1%. If you keep your employees on payroll or rehire them before December 31, 2020 and maintain salary levels, the SBA will forgive part or all of the principal amount of the loan plus accrued interest (depending on what you use the loan for). The loan forgiveness amount decreases if you’re not able to retain or rehire all of your employees. PPP loans are 100% forgiven if employers use them to cover eligible expenses. Again, eligible expenses include payroll costs (e.g., wages, tips, etc.), interest on mortgages, rent, and utilities. Employers must use 60% of the loan for payroll costs and can use 40% for non-payroll costs (e.g., interest on mortgages, rent, and utilities).
To request loan forgiveness, employers need to submit a request to their lender and provide documentation proving the loan was used for eligible expenses. Documentation should include the number of full-time equivalent employees (FTEs) and their pay rates and eligible mortgage, lease, and utility payments.
Small businesses with fewer than 500 employees can apply for a PPP loan. This includes self-employed individuals, sole proprietors, nonprofit and veteran organizations, independent contractors, and tribal businesses. Depending on your industry, the SBA may also extend loans to businesses with more than 500 employees.
To apply, you can go through a number of lenders, such as a federally insured depository institution or credit union, SBA 7(a) lender, regulated lender, or participating Farm Credit System institution. You must fill out an application form and provide supporting documentation (e.g., 2019 and 2020 payroll ledgers).
Because of the Paycheck Protection Program Flexibility Act, employers can receive a PPP loan and defer paying the employer portion of payroll taxes. Before the PPP Flexibility Act was signed into law, employers who received a PPP loan could only defer payroll tax payments until their loan was forgiven. Now, you can defer payments throughout the rest of 2020. Per the IRS, the Social Security tax you deferred must be paid by the following due dates:
- December 31, 2021 (50%)
- December 31, 2022 (remaining amount)
Keep in mind that the Social Security tax deferment is not the same thing as claiming the Employee Retention Credit, according to the IRS. The SS tax deferment is a universal employer benefit under the CARES Act.
PPP funds are limited, meaning that the loans are on a first-come, first-served basis. If you want to take advantage of the PPP, you need to apply as soon as possible.
Paycheck Protection Program overview
- What is it? The Paycheck Protection Program, or PPP, under the CARES Act; replenished under the Paycheck Protection Program and Health Care Enhancement Act.
- What does it do? Provides small businesses with up to 24 weeks of coverage for payroll costs and qualifying non-payroll costs.
- Who can apply? Small businesses with 500 or fewer employees (first-time borrowers).
- How can you apply? Using the Paycheck Protection Program application and working with a lender.
Alert! PPP changes
The Consolidated Appropriations Act (the Act or CAA) made a number of changes to the PPP and other COVID-19 relief measures.
The legislation provides additional funding to the PPP and also made the following changes to the program:
- Expanded eligibility for nonprofits (includes set-asides for very small businesses and community-based lenders)
- Second-time loans for eligible businesses with fewer than 300 employees and at least a 25% drop in gross receipts in a 2020 quarter compared to the same 2019 quarter
- Businesses can claim the Employee Retention Credit (ERC) in addition to a PPP loan (before, businesses were only allowed to opt into one or the other)
- Expenses you can spend your PPP loan on that qualify for forgiveness now also include operating expenses, covered property damage, supplier costs, and worker protection expenditures
- A simplified forgiveness application process for loans up to $150,000
- Businesses can deduct expenses paid with forgiven PPP loans from taxes
Stay tuned for more information regarding the new bill and how it will impact the PPP loan process.
2. Economic Injury Disaster Loan
Another coronavirus small business loan alternative is an Economic Injury Disaster Loan (EIDL) through the SBA. An Economic Injury Disaster Loan is available to small businesses affected by a declared disaster (e.g., coronavirus). The maximum loan amount for each business is $2 million. Previously, small businesses in the U.S. could apply for an Economic Injury Disaster Loan advance of up to $10,000, but this money is no longer available.
Small businesses with fewer than 500 employees (including sole proprietorships, independent contractors and self-employed individuals), private nonprofit organizations, and 501(c)(19) veterans organizations affected by COVID-19 can apply for an Economic Injury Disaster Loan. Businesses with 500 or more employees in certain industries may be able to apply for an EIDL if they meet the SBA’s size standards.
The EIDL advance is forgivable and can be used for a range of business needs. However, aside from the advance, the rest of the loan is not forgivable. Businesses with credit elsewhere are not eligible for an EIDL. Economic Injury Disaster Loans provide relief for qualifying businesses by providing:
- Low interest rates: 3.75% for businesses and 2.75% for nonprofit organizations
- Long-term repayment plans: Up to a maximum of 30 years
You can use an Economic Injury Disaster Loan to cover employee wages, rent, accounts payable, and other expenses.
Eligible businesses can apply for an Economic Injury Disaster Loan through the SBA by filling out an online application on the SBA’s website. The EIDL advance funds are available within days of a successful application. If you were lucky enough to get the loan advance of up to $10,000 before it ran out, it does not have to be repaid if funds are used for:
- Providing paid sick leave to employees unable to work due to the direct effect of the COVID–19;
- Maintaining payroll to retain employees during business disruptions or slowdowns;
- Meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains;
- Making rent or mortgage payments; and
- Repaying obligations that cannot be met due to revenue losses
You can apply for both the EIDL and PPP. However, you can’t double-dip and get funds from both loan programs for the same reason.
Economic Injury Disaster Loan at a glimpse
- What is it? An SBA Economic Injury Disaster Loan (EIDL)
- What does it do? Provide relief to businesses impacted by the coronavirus or another declared disaster. Qualifying businesses get low-interest rates and long-term repayment plans.
- Who can apply? Small businesses with fewer than 500 employees, private nonprofit organizations, and veterans organizations.
- How can you apply? Eligible small business owners can apply online using the SBA’s COVID-19 Economic Injury Disaster Loan Application.
Alert! EIDL changes
The CAA also provides additional funding for the EIDL program. The Consolidated Appropriations Act will replenish funds by providing $20 billion for new EIDL grants.
Grants will be available for small businesses and nonprofits in low-income communities that had a 30% economic loss and have less than 300 employees.
The new COVID-19 legislation also extends the covered period for EIDL grants through December 31, 2021.
3. SBA Express Bridge Loan
An SBA Express Bridge Loan allows small businesses that currently have a business relationship with an SBA Express Lender to access up to $25,000.
This loan provides financial assistance to small businesses impacted by the coronavirus pandemic (or other declared emergencies) to help overcome loss of revenue. Businesses can apply for an SBA Express Bridge loan if they urgently need funds, especially if they’re waiting to be approved for an EIDL or other financing.
Businesses in any state can qualify for an SBA Express Bridge Loan and apply through an SBA lender until March 13, 2021.
Any small business impacted by COVID-19 is eligible for an SBA Express Bridge Loan if they already have a relationship with an SBA Express Lender.
To apply for an SBA Express Bridge Loan, provide the following documentation to your lender:
- IRS tax transcript
- Information proving an existing financial relationship between you and the lender
- An SBA borrower information form
Keep in mind that your lender might require additional information.
SBA Express Bridge Loans breakdown
- What is it? SBA Express Bridge Loan (part of the Express Bridge Loan Pilot Program)
- What does it do? Provide up to $25,000 in funding for small businesses impacted by the coronavirus.
- Who can apply? Small businesses that have a business relationship with an SBA Express Lender.
- How can you apply? Through your SBA Express Lender.
Additional loan and funding options
In addition to the above loan options, you are likely looking for some additional assistance to get your business back on track. Take a look at additional small business relief options for small businesses below:
- SBA debt relief
- Lines of credit
- Low-interest credit cards
- Coronavirus tax credits, if applicable (e.g., Employee Retention Credit)
To reduce costs, you can also consider making lower business credit card payments or negotiating with vendors and suppliers.
Regardless of which route(s) you go, you should discuss financing and business loan options with your business’s banking institution and lenders (if applicable).
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