2 brand-new Federal government small business loans can and WILL help your small business or businesses amid this historically dreadful pandemic we are facing together. Crippling some, hurting many, and affecting all, coronavirus has beckoned Federal emergency relief in the forms of the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDLs). I aim to leave you with a thorough understanding of your place in relation to these loans at this moment of your reading and point you in the right direction going forward with your actions in the coming weeks and months ahead.
In general terms of definition, The Paycheck Protection Program administers financing to businesses for the use of paying business employees and retaining them throughout the pandemic, where in other cases without PPP they may be furloughed or let go. The Economic Injury Disaster Loans administer financing for temporary earnings losses hindering businesses as a result of COVID-19. Before you get too far reading on these revolutionary and expanding loans helping people all over our nation, does your business or one you hold dearly even apply for eligibility in this case? With so much going on around us, most small businesses qualify, but do you?
For starters, total employee number requirements eliminate anyone with more than 500 employees for both the PPP and EIDL loans. Beyond this quantitative limit is where ineligibility identifiably differs between PPP and EIDL. In terms of eligible business employees, the Paycheck Protection Program defines “employee” as all salary, wages, benefits, tips, commissions etc. for a maximum of $100,000 allocation per employee. EIDL quite simply defines all part-time and full-time employees as covered by the loan. PPP excludes at-home employers such as babysitters or personal caregivers, along with excluding businesses in the cannabis industry. As in most cases of Federal management, past criminal history will be taken into consideration along with prior Small Business Administration (SBA) loan default history. Lenders do not qualify for PPP. EIDL restrictions pertain primarily with gambling income, as seen most commonly among small business ventures such as casinos and race tracks who see more than ⅓ of their general income come from gambling profits. EIDL qualifiers in terms of profiting entities are: partnerships, corps, independent contractors, and sole proprietors. IRS tax exempt 501c, 501d, and 501e cover non-profits.
Money. Numbers. Let’s talk about these components in more detail as pertaining to the Paycheck Protection Program and Economic Injury Disaster Loans. The absolute maximum loan amount for any individual is $10 million for PPP and $2 million for EIDL. Quite the difference between the two if one were to reach that level of qualifying need! In a more often comparison, PPP payings can go for up to 8 weeks of regular payroll costs month-to-month from last calendar year. On top of that you can sprinkle another ¼ of your monthly costs in payroll and SBA pre-approved refinancible debt. Even more specific to your common day small business owner you’ve come to know, the loan amount maximum is 2½ times your 2019 payroll average for PPP. EIDL is still yet to be determined in these guidelines and is up to the discretion of the Small Business Administration. So, now to answer what was originally my first question concerning these loan opportunities…..how is the interest rate? You can find PPP at a meager 1%, while EIDL is a tad more specific with a 3.75% rate for small businesses and a discounted 2.75% for non-profits. What about deferral of payments? PPP you can take up from 6 months up until a year from recording of your loan. With EIDL it can be up to a year but is still up to SBA determination. Quite possibly the most noteworthy stipulation concerning these new loans and how they affect you is concerning Loan Fees and Collateral. Fees are waived altogether for Paycheck Protection Program loans as well as required collateral standards for any qualifying borrower in the program. The lender of the loan will personally benefit from this standpoint through no action of yours as a borrower, but by getting their fee compensation from the Fed coming out to 5% (excluding loans >$350,000), 3% (loans $350,000<x>$2 million), and 1% finally (+$2 million). The Small Business Administration, like mentioned previously, is still TBD on loans exceeding $25,000 with EIDL. They have waived fees for anything less than that at this time. Here is an example of payment for EIDL at a 30 year rate of coverage: $25,000 @ $116/month. What expenses can I pay for with my EIDL loan? Fixed debts, payroll, insurance, operating expenses, and accounts payable would be your easiest starting answer applicable to your business life and practices. But not lost profits. What expenses can I pay for with my PPP Loan? Payroll up to $100,000/employee all things considered such as amenities and coverages, mortgage interest (before 2/15), and rent & utilities (before 2/15). No more than 1/4 of the forgiven amount may be allocated for non-payroll costs.
Time is money. And money is time. Let’s look at some terms of dates and the near and distant future implications of these loans. While we still do not know the SBA’s time table in handling the EIDLs, it is of public record and accord that PPP is available through its June 30th cut-off. Don’t wait too long though before resource caps are met……($349 billion). The term of loan differs greatly between the two of the Paycheck Protection Program and Economic Injury Disaster Loans. PPP is a 2 year term of loan, while like previously mentioned the EIDL can go up to 30 years, like a traditional mortgage loan. So in a less long-term sense, what about advance potential on these loans for those who say it’s my money and I need it now? PPP you are out of luck, there is no chance for an advance. Patience can be less of a virtue with EIDL offering a $10,000 advance that can go unpaid in full or in part at the discretion of the SBA in terms of you paying it back. If a borrower has a PPP loan on top of an EIDL, the $10,000 will be deducted from PPP loan forgiveness. PPP loan forgiveness will document the loan amount or your expenses total, whichever is less of a financial burden on you, for the 2 month post loan time frame. PPP forgiveness will however in a less friendly manner take away forgiveness if you fail to keep employee number totals and salary dispersions below the 25% deduction level of measurement. Tell your lender you want to submit for forgiveness if you want to start that process.
Wellllll then…...where do I apply for the Paycheck Protection Program? Any Small Business Administration lender will suffice and you can find them in www.sba.gov if you need help. Credit unions that are federally-regulated are another option for you as well. In EIDL sum, anticipate having a handy YTD P/L statement, monthly sales figures, income tax return, appropriate EIDL forms, liabilities listing, and a tax info authorization for all qualifying parties involved among other potential required details. Hang tough and let people and sources of knowledgeable information such as this organized analysis lend helping hands to you and others. “I don’t need any help or anybody” he/she says. Yes you do, we all do. Together.