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These are challenging times. The devastating impact of COVID-19 has led to social distancing and forced closures. And, as a result, shutting down most operations and putting many out of work. According to Forbes magazine, as many as 30 million small businesses have witnessed a massive decline in revenues across the United States. Needless to say, both government and private sources of financial aid for small businesses are the need of the hour.
America’s small businesses and their employees, including home remodeling professionals, have been hit hard. In an endeavor to help them find relief during the COVID-19 pandemic, and make these difficult times bearable, many federal, state, and private organizations have taken certain measures for emergency funding.
One such financial resource for small businesses and workers comes in the form of the Coronavirus Aid, Relief, and Economic Security aka the CARES Act. While the Small Business Administration (SBA) has always been supplying low-interest-rate loans to help businesses and homeowners recover from declared disasters, this act has been amended to accommodate the calamity.
Under this program, a spending budget of about $2 trillion was approved on March 27, 2020 in reaction to the economic crisis due to Coronavirus. The aim is to support individuals and small business owners affected by this deadly pandemic and economic downturn. And, also help preserve jobs or compensate for a lack of income in the American industries.
Some important sources of financial aid for small businesses under the CARES Act include the Paycheck Protection Program (PPP), Economic Injury Disaster Loan (EIDL), and the Emergency Economic Injury Grant (EEIG).
What is the CARES Act?
The CARES Act is a great way to provide quick and direct economic assistance to American workers as well as small businesses. Interestingly, it’s the largest economic relief bill in the history of the United States of America! Around $2 trillion funding is in the reckoning.
The good news is that all the small business owners in the U.S. states are eligible to qualify for assistance from the CARES ACT provided they give proper documentation as to why they qualify as small businesses. These could include businesses with under 500 employees, sole proprietorships, independent contractors, and cooperatives.
However, keep in mind that though an eligible borrower can apply for loans under PPP and EIDL, the funds can’t be used for the same purposes.
For instance, they can use the loans for rent, health benefits, insurance premiums, or utilities. The loans are quickly granted up to a maximum amount to help pay up to eight weeks of payroll costs.
Now, let’s explore the various loan programs under the CARES Act:
Payroll Protection Program Loans
This loan program is specially designed to keep the workers of small businesses on the payroll during the COVID-19 crisis. As a direct incentive, SBA will forgive loans if all employees are kept on the payroll for eight weeks and the fund is used to cover payroll costs, rent, mortgage interest, or utility costs.
These payroll costs include salaries, wages, commissions, tips, and employee benefits such as costs for parental, family, medical, or sick leave.
For these forgiven loans, the SBA has authorized up to $349 billion — capping the payroll costs at $100,000 for each employee on an annualized basis. Needless to say, all loan terms will be the same for everyone.
• How does the PPP loan forgiveness work?
The loan amounts will be forgiven as long as the funds are used for payroll and certain other costs over the 8 week period after the loan is made, and the employee and compensation levels are maintained.
Do note that if you’re a business owner, your loan forgiveness will be reduced if you either decrease your full-time employee headcount or if you decrease their salaries and wages by more than 25% — especially those who made less than $100,000 annualized in 2019.
Do keep in mind that employees who have made any changes between February 15, 2020 and April 26, 2020, will have until June 30, 2020 to restore their full-time employment and salary levels.
• Who is eligible for PPP loans?
Any and every business with 500 or fewer employees can apply. If those with more than 500 employees meet applicable SBA employee-based size standards in a particular industry, they are eligible too.
These include nonprofit organizations, tribal business concerns, veterans organizations, sole proprietorships, self-employed individuals, or/and independent contractors.
You can read SBA details for more guidance.
How do you apply for PPP loans?
April 3, 2020 onwards, small businesses and sole proprietorships can apply for a PPP and receive loans to cover their payroll and other expenses. Simply fill in the Paycheck Protection Program loan application and submit the form with the required documentation to approved SBA lenders.
You can then submit a request for loan forgiveness to the lender who’s servicing your loan. Once the documents are verified, and you certify that you used the forgiveness amount to keep your employees and make eligible payments, the lender must process the forgiveness within 60 days — tentatively by June 30, 2020.
Where can you apply for PPP loans?
You can apply for a PPP through any federally insured depository institution, federally insured credit union, farm credit system institution, or approved SBA lenders.
Although the program is open until June 30, 2020, it’s a good idea to apply as quickly as possible. Keep in mind that there’s a funding cap and loan lenders need time to process your PPP loan.
What paperwork or documents are required for a PPP loan application?
You will need to provide your lender with payroll documentation. This includes verification of the total number of full-time employees on the payroll, the payroll costs in dollars, covered mortgage interest payments, covered rent payments, and covered utility costs.
You will also have to certify that:
- All the documents and information provided with the PPP application are accurate. And, identical to those you submitted to the IRS.
- The loan is necessary to support your ongoing operations during the Coronavirus crisis.
- All funds will be used to maintain the payrolls of employees.
- The loan amount will be used to make the eligible mortgage, lease, and utility payments.
- You will not receive another loan under this program.
- You agree that the loan lender can share your tax information with the SBA’s authorized representatives.
Keep in mind that making a false statement to get a loan is punishable by law.
Want to learn more about PPP loans? Read through the PPP factsheet.
Economic Injury Disaster Loans and Emergency Economic Injury Grants
Economic Injury Disaster Loan is another measure taken to help small business owners in response to the Coronavirus pandemic. They are eligible to apply for the EIDL with an advance of up to $10,000 — not to be repaid later.
The loan amount will provide economic relief to those who’re currently experiencing a temporary loss of revenue. Remember that these loan funds will be made only available after the application is processed and deemed successful.
Interestingly, you can borrow an advance without a personal guarantee. Moreover, for loan approval, you do not have to provide your tax returns. And, you don’t have to use a collateral if the loan amount is $25,000 or less.
Additionally, you will have to agree that the SBA reps can and will review your business tax records.
There’s also a provision of emergency funding in the form of Emergency Economic Injury Grants (EEIG) for those harmed by COVID-19 within three days of applying for an EIDL.
To access the advance amount, you need to first apply for an EIDL and then request the advance. These low-interest loans are up to $2 million, with provision for principal and interest deferment.
You can use the money to pay for payroll and other operating expenses that couldn’t be met due to the COVID-19 disaster.
• Who is eligible for the EIDL grant?
This program is for all small businesses that have less than 500 employees, or those which meet the SBA’s size standards for those industries. Needless to say, you should be located in a declared disaster area in order to receive the loan.
Here’s a list of those who qualify for EIDL application:
- Sole proprietorships, with or without employees
- Independent contractors
- Cooperatives and employee-owned businesses
- Tribal small businesses
- Small business concerns
- Small agricultural cooperatives
- Private non-profits of any size
• How do you apply for an EIDL?
You apply for EIDLs with the SBA. The COVID-19 version of EIDL has a very streamlined application process — taking you approximately two hours to complete the form.
All you have to do is provide some standard information about your business and earnings. It’s best to read the EIDL guidelines to get a clearer picture.
• What paperwork is required for EIDL?
To apply for an EIDL, you need the following documents:
- Complete loan application (SBA Form 5).
- Tax Information Authorization (IRS Form 4506-T).
- A list of the managing members and partners or business parents, subsidiaries, and/or other businesses with common ownership or management.
- The most recent Federal income tax returns for the applicant business.
- A complete Personal Financial Statement (SBA Form 413).
- Schedule of Liabilities listing out all fixed debts.
• How quickly will the EIDL money be available?
After successfully filing your loan application, your assigned loan officer will ask you a set of questions. The quicker you respond to these queries, the lesser time it will take for your application to be processed.
Other grants and options
Expanded unemployment insurance (UI)
This unemployment option is for self-employed workers, independent contractors, or those with limited work history. The federal government is incentivizing states with a $600 per week increase in benefits for up to four months.
Additionally, the federal government will fund 13 weeks of unemployment benefits through December 31, 2020 after workers have run out of state unemployment benefits.
Small Business Debt Relief Program
If your disaster loan was servicing on March 1, 2020, the SBA will provide automatic deferments through December 31, 2020. Above all, it will pay the principal, interest, fees, and microloans for a period of six months.
The automatic deferral means that the interest will continue to accrue on the loan with a notice that the loan is deferred and no payment is due. Moreover, any established Pre Authorized Debit (PAD) or recurring payments on your loan will not be canceled.
Furthermore, once the automatic deferment period gets over, the borrowers will resume making regular principal and interest payments.
Want to know more about the various grant options? Visit grantspace.org for guidance. It’s a free resource that covers everything from giving small worker grants to $75,000 zero-interest loans for small businesses.