3 Programs Every Business Owner Should Be Considering to Keep Their Doors Open
*PLEASE NOTE: As of 4/16/2020, the Economic Injury Disaster Loan (EIDL) Program and the Paycheck Protection Program (PPP) have run out of funds according to statements made by the Federal government.
Small businesses in California are being hit hard by the COVID-19 crisis. Business closures and “shelter in place” orders are making it difficult for businesses to operate. Since small businesses often operate on limited margins, even a brief interruption of sales or a large order cancellation could result in the business being forced to shutter their doors.
Small businesses are unlikely to get support from insurance companies because epidemics are generally an exception to coverage. Even so, business owners should check their insurance policies and talk to their agents about their coverage. It may be wise to file a claim even if the losses are not covered because decision-makers in the government often look at the total number of claims filed when determining if a relief program is needed.
1. Get an SBA Loan for Up to 2 Million Dollars
Even though insurance companies may offer little in the way of support, there are state and federal initiatives that may offer support to small businesses. The Small Business Administration (SBA) has implemented an Emergency Disaster Assistance Fund, which provides loans for businesses. There are several perks to these loans, including low-interest rates and long-term repayment options.
The SBA’s loans offer up to $2 million in funding, at interest rates ranging from 2.75 to 3.75 percent. The repayment terms stretch as long as 30 years, depending on the individual loan situation and borrower ability. There is no fee to apply for an SBA loan, and businesses do not have to accept the loan if they are approved.
Business owners should be aware that there is a three-week turnaround for loan application processing and approval. With so many businesses likely to take advantage of the program, business owners should apply as soon as possible. It is likely that there will be a “rush” of applications in states like California and Washington, which are the first states to have the loan program available.
Small businesses should also be aware that there are exceptions to qualifying for the SBA loans. Businesses must have been solvent before the COVID-19 crisis began. Businesses also must not have available credit elsewhere.
2. Get Up to 10 Million Dollars Under the CARE Act
On March 27, 2020 Congress passed the third portion of the Coronavirus Aid, Relief, and Economic Act. The President signed it into law immediately. This law provides more SBA loan resources, including the Paycheck Protection Program, expanding guidelines for 7a SBA loans, loosened company revenue restrictions, and loan allowances of up to $10 million. Companies that have up to 500 employees are eligible, but there are some exceptions.
Under the Coronavirus Aid, Relief, and Economic Act, loans provide funds to businesses to cover the cost of a variety of essential needs, including:
• Health benefits
• Insurance premiums
• Mortgage interest
These covered costs may qualify for loan forgiveness for up to eight weeks following loan origination. Of course, there are exceptions and limitations to forgiveness, which are based on the expenses covered, how the loan proceeds are actually used, and how many employees the business has. Portions of the loans that are forgiven will be paid back by the SBA to the lender.
Naturally, there are many details and variables that have not been finalized yet. Lenders are only now receiving all the necessary information, and are beginning to receive applications. That means that business owners must be persistent and must make sure that they are completing their applications in a timely manner and are following applicable guidelines. Business owners can help their individual application processes by collecting records early in the application process. The SBA recommends collecting:
• 2017 and 2018 tax returns (2019 if applicable)
• Payroll records from February 2019 through February 2020
• 2019 year-end financial statements
These documents are required for every application, but there may be additional items needed. Business owners will need to verify required documents with their lender.
3. Collect Even More From California State Programs
In addition to small business assistance offered by the federal government, the State of California is also offering financial assistance for businesses and independent contractors. California has expanded programs during the COVID-19 crisis, including the Pandemic Unemployment Assistance (PUA), the California Infrastructure and Economic Development Bank (IBANK) Disaster Relief Loan Program, the IBANK Jump Start Loan Program, and the California Capital Access Program for Small Business. These programs consist of:
• PANDEMIC UNEMPLOYMENT ASSISTANCE (PUA) PROGRAM – This is a newly available emergency unemployment assistance program under the federal CARES Act. PUA provides assistance for unemployed or partially unemployed individuals who are not eligible for regular unemployment insurance and who are unable or unavailable to work due to COVID-19 related circumstances.
The Employment Development Department (EDD) will be accepting on-line applications for this program beginning on Tuesday, April 28. Check back on this page for the latest updates.
•CalCap, which is a loan loss reserve program. CalCap offers up to 100 percent coverage on losses due to certain types of default. Borrowers enrolled in the CalCap program are more likely to find lenders eager to offer borrower-friendly terms since it minimizes risk to the lender.
• The same is true for the IBANK Disaster Relief Loan Program, which guarantees 80-95 percent loan coverage, or up to $1 million for loans granted through Financial Development Corporations. In order to qualify for IBANK’s program, the business must be located in California and have no more than 750 employees, or be a nonprofit organization.
• The IBANK Jump Start Loan Program offers direct “microloans” for low-wealth entrepreneurs whose businesses are in low-wealth or disaster communities. These loans range from $500 to $10,000. Eligibility for these loans depends on annual income, which must be less than or equal to the state average.
In addition to statewide resources, some local regions and communities are offering financial assistance. These resources can be found by consulting the COVID-19 Resources Map offered by the Governor’s Office of Economic Development.