By: Erin O’Shea, CFO of SEED SPOT
If you’re a small business, solopreneur, or non-profit, I don’t have to tell you that you’ve been hard-hit by the economic crisis brought on by COVID-19. Maybe you’ve had to lay off workers as you watch your revenues slow to a trickle. Perhaps you’ve never had employees, but your contractor’s income has dried up. While these are stressful times, there is actually free and cheap money that’s been made available to you. All you have to do is apply!
The Economic Injury Disaster Loan is partially free
The Economic Injury Disaster Loan (EIDL) is part of the already-existing SBA program for victims of disasters like hurricanes. It allows small businesses and non-profits to obtain a grant for $10,000 and low-interest loans of up to $2 million. There’s no collateral required and the application process is fairly easy. To qualify, you only need to meet the SBA’s definition of “small” (generally 500 employees, but can be greater depending on your industry). There are also some exceptions that become apparent on the first page of the application (i.e. no sex industry, gambling, illegal, etc.).
While it does not appear to be on the SBA’s website nor in the legislation, we’ve heard that SBA is limiting the EIDL to $1,000 per employee.
For more information or to apply online, visit this link. If you don’t see access to an application, it’s because they close it when the funding is gone. As of this writing, it’s expected that $60B in additional funds will be approved on April 23, 2020.
The Paycheck Protection Program can be free
The Paycheck Protection Program (PPP) is part of the CARES legislation signed into law on March 27 and expected to be refunded on April 23, 2020. It allows any business with fewer than 500 employees to borrow up to 2.5x of their pre-crisis average monthly payroll up to $10 million. The definition of “payroll” is broad and includes income to sole proprietors and independent contractors, so you’re still eligible even if you have no employees. The proceeds must be spent on rent, utilities, mortgage, and other interest, and/or payroll. The loan is cheap (capped at 1%) and it becomes completely free if you maintain (or resume) the same number of employees as you had before the crisis during the eight weeks following receipt of the loan.
There is some small print in the details of the PPP. For example, individuals paid over $100,000 annually are capped for the payroll calculation; if you’re seasonal, there’s an alternate calculation you can use; and there are a couple of ways you can calculate your number of employees. If you want to read the details, you can find the bill itself here.
Unlike the EIDL, the PPP must be applied for through a bank. At the time of this writing, banks are scrambling to deal with the volume, and many are restricting applicants to their current customers.
Some Good-to-Know Information
Neither loan requires collateral. There are no liens nor personal guarantees. If you borrow under EIDL (which you can do right now on SBA’s website), you can roll the balance of it into the PPP program.
If you do apply for PPP, your goal should be ease of processing, not maximizing your amount. In other words, it is better to go with calendar 2019 if that means you have a calculation that can be easily tied back to your tax return rather than choosing a twelve-month period that requires piecing multiple pieces of support together. Give the bank a summary that helps the loan officer tick and tie the calculation of your average back to the W-3, W-2, 941, tax return, and/or other documents that verify your income/payroll. The faster the bank can review and approve your loan, the more likely you are to get the money. These loans are only available until funding runs out.
If you’d like some help navigating the process, SEED SPOT is here for you. Check out seedspot.org/programs for a list of upcoming webinars or contact us at firstname.lastname@example.org for information about one-on-one technical assistance.
This article was written by Erin O’Shea, CFO of SEED SPOT with 20 years of corporate and small business banking experience. These days, she is very popular with her dogs who think this working-from-home thing is awesome.