There are four primary small business funding options available during the COVID-19 pandemic, offered by the Small Business Administration (SBA) under the CARES Act:
- Emergency Economic Injury Grant (Emergency Grant)
- Economic Injury Disaster Loan (Disaster Loan)
- Paycheck Protection Program Loan (PPP Loan)
- Traditional SBA Loan
Emergency Economic Injury Grant (Emergency Grant)
The Emergency Economic Injury Grant is for businesses that need emergency cash now to stay in business. This program makes available an emergency grant of up to $10,000 per business. An Emergency Grant is not required to be repaid. The funds may be used to pay salaries, sick leave, rent, loan payments, or other obligations. The funds may be advanced as soon as three days from application date, and can be used to cover expenses ranging in time frame from January 1, 2020 to December 31, 2020.
Economic Injury Disaster Loan (Disaster Loan)
The Economic Injury Disaster Loan is perfect for small businesses who need help covering non-payroll expenses, need funding quickly, and require favorable long-term repayment terms. Disaster Loans are not new, but the CARES Act made enhancements to the program, covering the calendar year of 2020. To be eligible, your company must have fewer than 500 employees. The CARES Act waived the requirement to exhaust other credit options available to you in order to be approved.
This program allows for loans of up to $2 million in order to meet working capital needs. The Economic Injury Disaster Loan may be repaid over a 30-year period at an interest rate of 3.75% (or 2.75% for not-for-profits).
Paycheck Protection Program Loan (PPP Loan)
The Paycheck Protection Program Loan is designed to cover the payroll costs for small businesses that would like to maintain full employment for their staff. The amount a small business can borrow depends on the average monthly payroll multiplied by 2.5. When calculating the average monthly payroll, salaries are capped at $100,000 annually. Be sure to make this adjustment when estimating the average monthly payroll expense.
When you apply for this type of loan, your SBA Participating Lender representative (banker) will ask you for prior year taxes or IRS quarterly payroll reports, such as a 941 or 944 from the prior year to support your application. For the purpose of a PPP Loan, a small business is defined as having less than 500 employees.
PPP Loans, when used for their intended purpose, will provide forgiveness for 8 weeks of payroll payments. The forgiveness amount will be reduced if you terminate employees or reduce salaries during the 8-week period. However, if your company restores reduced or eliminated salaries between February 15, 2020, and June 30, 2020, loan forgiveness is also restored. The program time-frame is retroactive to February 15, 2020, and covers the payroll period of 2/15/2020 through 4/15/2020, in order to bring back employees who may have been laid off or furloughed since that day.
Traditional SBA Loan
If you're simply looking for a traditional SBA loan, now is the perfect time to get one. This type of loan can fund up to $5 million at low rates ranging from 1.0-2.75%. Payment terms are typically 10 years without real estate and 25 years with real estate. The SBA will subsidize the loan with 6 months of principal, interest, and fees. If you are considering expanding your business, the favorable terms available right now present an incredible opportunity.
The variety of small business funding opportunities available at this historic moment makes it possible for most small businesses to receive favorable loan terms. And in some cases, small businesses may receive free money from the government. This funding will hopefully keep America's workforce employed and the economy functioning while we shelter in place. To find out more about applying for one of these programs, please contact your local SBA Participating Lender, or your local banker.