According to the US Small Business Administration (SBA), over 30 million small businesses accounted for 99.9% of total businesses in the United States in 2018. Over 59 million small business employees accounted for 48% of total employees across the country.
On March 27, President Donald Trump approved and signed the Coronavirus Aid, Relief and Economic Security Act (CARES law) to address the economic impact of COVID-19. Under the Act’s Paycheck Protection Program (PPP), private banks are now able to grant loans guaranteed by the SBA. Community banks are set to play a particularly important role in the distribution of PPP funds.
The PPP loan application process is on a first-come-first-served basis. On April 3, the first day of the program, a total of 987 banks nationwide had made nearly 13,000 loans worth more than $ 4 billion. For this reason, small business applicants may experience technological difficulties and / or delays when submitting their application.
First Mountain Bank, Community Banks of Colorado and Pueblo Bank & Trust are ready to offer the PPP program locally.
Leadville Lake County Economic Development Corporation business mentor John Trenary partnered with the Herald to answer the CARES Act’s financial resource questions for small businesses. His answers are as follows:
– Are the loans to protect the paycheck free of charge?
They can be, if they are used to retaining or hiring workers. The SBA is now guaranteeing $ 349 billion of potentially forgivable loans as part of the bailout package.
A business with up to 500 employees, including self-employed owners and freelancers, can borrow up to $ 10 million to be repaid over two years at an annual rate of 1%. Money used to pay salaries can be forgiven, and some of the money used for rent, mortgage interest and / or utilities can be at least partially forgiven. Payments are deferred for six months.
A company can technically get the full loan amount forgiven. But if an entrepreneur cut jobs – say an individual had 10 employees, let them go, and hired only five – the loan amnesty amount would be reduced and the entrepreneur would have to pay some back. According to the government, since many landlords are expected to take advantage of loans, no more than 25% of the forgiven amount is expected to be for things other than payroll, such as rent, mortgage interest and utilities. Hence, there is a good chance that entrepreneurs will have early repayments.
– When will my loan be paid off?
The government will calculate how much of a loan will be forgiven after June 30th. The program covers the period from February 15 to June 30 and owners will need to document how many workers they employed during that period and how much they were paid. If an entrepreneur has laid off workers, he has until June 30 to hire them back. The sooner an entrepreneur hires and begins paying employees, the greater the individual’s loan amnesty.
– Can I also get an emergency loan?
The SBA is giving emergency loans for economic damage. These loans are intended to help companies whose revenue losses have left them without working capital, making it difficult or impossible to pay operational expenses including payroll, fixed debt payments, and outstanding bills. A company receiving an emergency loan cannot use the money for payroll purposes if it is also obtaining a paycheck loan.
Emergency loans give homeowners up to $ 2 million at an annual rate of 3.75%. Loans can be taken out for up to 30 years, but the terms of each loan will be determined on a case-by-case basis and will depend on the financial situation of each company.
Businesses can also apply for a $ 10,000 advance that can be granted within three days, the SBA says. This does not need to be repaid. Emergency loan applications are made directly through the SBA on its website https://covid19relief.sba.gov/.
– Can freelancers get unemployment benefit and a loan at the same time?
Yes. The bailout package provides unemployment benefits for freelancers and independent contractors who have not qualified for such help in the past. Hence, millions of people, including wedding photographers, graphic designers, musicians and writers who have lost concerts or projects, can get unemployment benefits. Although freelancers can also qualify for salary protection loans, they cannot use the emergency loan money to cover payroll.
– What other money is available?
The Federal Reserve is working on a program to provide loans directly to small businesses. Details have not yet been disclosed. Individual states, counties, and cities can have small business loans or grants. Those who have not announced any programs may still create them as the COVID-19 outbreak has probably not yet reached its peak. Check online with state or local agencies that support small businesses such as the Leadville Lake County Economic Development Corporation.
– And the online loan?
Online lenders promise fast money. Some of these lenders process loans on the same day and, even in the best case scenario, many companies with cash flow problems turn to them. But in many cases, the money carries a high interest rate and / or large payments. And unlike traditional loans, the amount of a payment may not be predictable; companies like PayPal, for example, will take a percentage of the revenue that goes into a borrower’s account.
Keep in mind that even if a business owner ends up repaying the full amount borrowed under the Salary Protection Program, the individual would only pay 0.5% over two years.
Under the PPP, small business owners will be able to request up to eight weeks of cash flow assistance at their local bank or any of the SBA-approved lenders. Potentially, as long as the loans go to things like keeping all employees’ salaries and the lights on and doors open, they can be completely forgiven.
How can I apply for payroll protection loans?
Entrepreneurs can apply online through any federally insured bank, credit union, or farm lender website, not just a traditional SBA lender. Some business owners might get money the same day they apply, as opposed to the weeks it takes to apply for a traditional SBA loan.
Although entrepreneurs do not need collateral or personal guarantees, they will need to document salary, rent, mortgage interest and utility costs. The salary portion of the loan is based on the monthly average of how much a company paid to employees in the year prior to the loan being granted.
As the application process for PPP loans is on a first-come-first-served basis, small business applicants may encounter technological difficulties and / or delays. Be persistent and don’t be discouraged; you can expect problems in huge roll outs like this.
Locally, the Colorado Small Business Development Center Network offers two consultants to assist Lake County businesses with free and confidential advice to help with PPP loan applications, unemployment questions, and more. Visit https://clients.coloradosbdc.org/reg.aspx?mode=counsel¢er=2400&subloc=0 to request an appointment.
Find out more about SBA loans and the online application process at https://www.sba.gov/funding-programs/loans/paycheck-protection-program-ppp.