A lot of small business owners are vaguely aware of the Federal government passing various laws related to the Covid-19 virus, but it’s not 100% clear on exactly what is in them (some bills are over 1000 pages!) or how we can utilize the benefits.
This guide aims to make it clear in plain English what’s available and how to get it. Note that there are some qualifications and addendums that this may not be 100% accurate to your specific small business, but should apply to 99% of small businesses out there.
- You can apply online and get $10,000 in 3 business days for free if you don’t qualify for a regular SBA loan. UPDATE: There are delays on this – see below.
- You can get 2.5 times your monthly payroll in a loan that has 6 months without payments, 1% interest and can largely be forgiven if you use it to cover payroll.
- You can apply for both programs above.
- You can get tax credits for paying required sick time under new rules.
Who Is This Guide For?
Since 99% of employers have 50 employees or less, this guide is only for private businesses (including sole proprietors) with less than 50 employees (not owned by other businesses). If you have more than 50 then we recommend our Small Business Action Plan article which lists the various laws and benefits that apply to those with 500 to 51 employees.
First, let’s get clear on the help that’s available. I won’t confuse you with the various legislation “Act” names and other things that just tend to make things hard to understand. Here is the help that’s available.
Resource #1: $10,000 Grant and up to $2 million Economic Injury Disaster Loan (EIDL)
Pay attention, because this is somewhat confusing if you’re not familiar with how SBA loans work. Typically, the Small Business Administration (SBA) will help businesses get loans that suffer from a disaster and this is called an Economic Injury Disaster Loan (EIDL). Private banks actually give the loans but they are guaranteed by the SBA.
You can get approved for up to $2 million depending on your credit, etc. Importantly, they’ve waived a “personal guarantee” of loans under $200,000 – that’s huge.
This new resource is different – it’s a grant that you can get right away (within 3 business days) and you don’t have to pay back if you don’t qualify for the EIDL loan! This is basically free money to any small business who can claim they are being affected by Covid-19 and don’t qualify for other SBA loans.
How to Apply
Visit https://covid19relief.sba.gov and simply complete the application online. The information is fairly simple and you should have the required information on hand or at least be able to estimate most required information (annual revenue, cost of goods sold, etc.). So, you will be applying for an EIDL but you will automatically be given the $10,000 grant to cover payroll and other qualified business expenses within 3 business days.
NOTE: Make sure to check this box at the end of the application to apply for the $10,000 Grant portion of the EIDL.
How Long Will It Take?
As mentioned, you can get the Grant in 3 business days. EIDL loans will take longer but the government is trying to expedite. I’ll update this page when I know more.
UPDATE 4/4/2020: We’re hearing reports that it is taking much longer than 3 days as of April 10, 2020 but we’re hearing that the funds are coming and apparently you can register and track your loan online with the SBA.
UPDATE 4/14/2020: We’re now hearing reports that the Grant is only being given at a rate of $1,000.00 per employee up to 10 employees. Either the initial information they provided was a lie or they changed the rules after seeing demand. Not sure which is worse but disgraceful behavior from the SBA.
Update 4/30/2020: These are being funded and it appears to be roughly 3 weeks after applying but varies from business to business.
Resource #2: Paycheck Protection Program (PPP) Loan up to $10 Million
NOTE: This program is starting April 3rd for businesses and April 10 for independent contractors but we believe that some banks are accepting applications now. Best to get in line first. Note that you can apply to this one as well as the EIDL above but this loan seems to have better interest rates and forgiveness.
As long as you have fewer than 500 employees and were in business on or before February 15, 2020 (and can certify that Covid-19 has negatively impacted your business), you can get a loan for 2.5 times your average monthly payroll (for previous 12 months) up to $10 million.
So, for example, if your payroll is $40,000/month then you could get $40,000 X 2.5 = $100,000. There are no payments for 6 months, no collateral or personal guarantees and the interest rate is 1%. The term is for 2 years.
NOTE: What you pay 1099 contractors are NOT included in this amount since they can apply for the PPP on their own starting April 10.
Even better, here’s more details from the SBA:
“The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.”
Apparently, whatever is used within the first 8 weeks will be forgiven on the loan. This is another fantastic opportunity for small businesses. If your business has been affected by Covid-19 then I’m not seeing much harm in applying for this loan. There are no prepayment penalties, the interest rate is low and a good portion of the loan can be forgiven.
How to Apply
You have to apply directly with an existing SBA-approved bank. Here’s a list of their top 100 lenders and a listing by zip code but I would recommend you contact your existing bank and see if they are an SBA-approved lender and if not, whom they recommend. Here’s the sample application form from the Treasury Department – download that and then get your information and documentation ready to go because it may take some time to get approved. The better your information the faster you get approved!
UPDATE: Quickbooks has been approved as an SBA Lender so if you’re a customer I would recommend them if your bank is not being responsive.
How Long Will It Take?
The government says they are encouraging bankers to expedite these loans, some in days so ask your banker and make sure you get your documents ready to go. I’ll update this page when I know more.
UPDATE: As of April 10, banks are taking much longer than expected but funds are still being distributed. We still recommend going to your current bank first.
UPDATE: As of April 30, there is a new round of funding for the PPP program from the government, however the larger banks like Chase, Bank of America and Wells Fargo have been limited to only a certain percentage of the money. Currently, we’re recommending you contact a local bank, PayPal (you don’t have to have a PayPal account) or Womply (who seem to be funding faster than the big banks).
UPDATE: Read this article on PPP Loan Forgiveness to make sure you meet the qualifications to have your loan forgiven.
Resource #3: Tax Credits for Employees Dealing with Covid-19
The Families First Coronavirus Response Act (FFCRA or Act) requires certain employers to provide their employees with paid sick leave and expanded family and medical leave for specified reasons related to COVID-19. These provisions will apply from April 1, 2020 through December 31, 2020.
Here are the qualifying reasons:
- is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
- has been advised by a health care provider to self-quarantine related to COVID-19;
- is experiencing COVID-19 symptoms and is seeking a medical diagnosis;
- is caring for an individual subject to an order described in (1) or self-quarantine as described in (2);
- is caring for his or her child whose school or place of care is closed (or child care provider is unavailable) due to COVID-19 related reasons; or [SEE BELOW FOR IMPORTANT EXCLUSIONS FOR SMALL BUSINESS]
- is experiencing any other substantially-similar condition specified by the U.S. Department of Health and Human Services.
However, the Department of Labor is exempting certain businesses with fewer than 50 employees. From the Department of Labor:
“The FFCRA covers private employers with fewer than 500 employees and certain public employers. Small employers with fewer than 50 employees may qualify for an exemption from the requirement to provide paid leave due to school, place of care, or child care provider closings or unavailability, if the leave payments would jeopardize the viability of their business as a going concern.”
“Small businesses with fewer than 50 employees, including religious and nonprofit organizations, are exempt from two aspects of the FFCRA’s provisions — (1) paid sick leave due to school closure, place of care closure or child care provider unavailability for COVID-19 related reasons; and (2) emergency paid leave under the Family and Medical Leave Act (FMLA) — when doing so would jeopardize the viability of the business, DOL said. An “authorized officer” of the business must determine whether it meets this criteria, according to the guidance.”
So if you have 50 or less employees and you are an “authorized officer” and can clearly document that complying with the act would jeopardize the viability of the business then you are exempt from point #5 above specifically and perhaps the others. I will update this section when I have more guidance.
What You Have to Provide to Employees
You will pay the required sick time (which is in addition to any current sick time or PTO offered). However, you will get a tax credit for the sick time. For example, if you owe $8000 in taxes to the IRS for payroll but you paid out $5000 in sick time, you only have to deposit $3000. Many payroll providers have already added the category of “emergency” pay to their systems to properly track this and make sure you get proper refunds. Make sure you track this as well.
- IRS Summary of the Bill
- Employer obligations in the new bill
- What employers need to know
- What it means for small business
Update: Here’s a nice summary of the various other benefits of the CARES Act.
I’ve spent much of the last week or two reviewing articles, PDFs, webinars and emails and none of them really made it clear how easy it was to apply for some quick cash and what a good deal the loans are, especially the PPP. I recommend every small business owner to consider taking advantage of these benefits if your business is even remotely affected by Covid-19.
Have any other advice or tactics that can help? I will continue to update this page with everything I can. Leave a comment below or email me matt – at – mycompanyworks.com.
Please stay positive, healthy and safe!