The U.S. Small Business Administration has created another lifeline for owners and employees of small businesses struggling amid the economic catastrophe unleashed by COVID-19.
Contained in the $2 trillion CARES Act economic rescue package signed last week is $349 billion for the Paycheck Protection Program, aimed at fast-tracking the delivery of emergency cash to small business owners to help them stay afloat. The program gives business owners incentives to keep their employees on the payroll by providing individual loans up to $10 million for payroll and business operating expenses.
If all employees are kept on the payroll for eight weeks from the date of loan origination, SBA will forgive the portion of the loan used for payroll, rent, mortgage interest or utilities during those eight weeks. Up to 100 percent of the loan is forgivable. Otherwise, loan payments for non-designated expenses will be deferred for six months. The loan program is retroactive from Feb. 15, which allows employers to rehire their recently laid-off employees (through June 30).
SBA Administrator Jovita Carranza said the program makes local lenders the single point of-contact for small businesses. Loan application and processing and disbursement of funds will all be administered at the community level, she said.
“Speed is the operative word,” Carranza said. “Applications for the emergency capital can begin as early as this week, with lenders using their own systems and processes to make these loans. We remain committed to supporting our nation’s more than 30 million small businesses and their employees, so that they can continue to be the fuel for our nation’s economic engine.
Treasury Secretary Steven Mnuchin said that by April 3 business owners should be able to apply for a loan at a participating lender, bank or credit union and be approved the same day. Business owners should contact their lenders to find out if they are participating in the loan program.
All businesses with 500 or fewer employees are eligible, except for certain industries where SBA sets a different cap. Eligible businesses include nonprofits, veterans organizations, tribal concerns, sole proprietorships, self-employed individuals and independent contractors, according to SBA. The maximum loan amount is $10 million. All loans will have an interest rate of 0.5 percent, maturity of two years, and the first payment (if any) deferred for six months. The loans are guaranteed by the SBA, which requires no collateral, no personal guarantees and no borrower or lender fees, according to the agency.
The Paycheck Protection Program is in addition to SBA’s regular Economic Injury Disaster Loan assistance. EID loans are low-interest and available for up to $2 million, with the first payment deferred for 12 months. The application has been simplified and can be completed totally online at sba.gov/disaster. SBA also has the EID Loan Advance for up to $10,000 to cover payroll and other business expenses. The form to apply is included in the EID loan application. If approved, the advance will be made available within three days and will not have to be repaid, according to SBA. The EID loan program connects borrowers with local lending institutions for the processing of applications.
Since March 17, SBA has declared all U.S. states and territories eligible for EID loan assistance, announced a 12-month deferment on EID loans provided due to COVID-19, implemented automatic deferment of previous disaster loans for homeowners and businesses through 2020, and waived garnishments through 2020.
Angela Burton, director of the SBA Lower Rio Grande District Office, said frequent updates are available on Twitter at @SBA_LRGV and @SBAgov. Business owners can also subscribe to SBA’s e-newsletter at sba.gov/updates or visit sba.gov/disaster for updates. Burton said her office has received a high volume of communications from worried small business owners seeking help to keep during the COVID-19 crisis.
“The SBA’s (LRGV) District Office has fielded thousands of calls and emails and we are strongly committed to providing the most effective, customer-focused response possible to assist our small businesses,” she said. “We thank our small businesses for their patience as the programs roll out.”