The preventative measures taken by the United States and other countries around the world in an attempt to curb the spread of COVID-19 will likely have the biggest economic impact anyone currently living has ever experienced. In fact, it’s predicted that it will take at least three years for the global economy to recover.
This isn’t good news for startups and other small business owners. Thankfully, the United States government has passed a bill that will release $350 billion in stimulus money to small businesses.
What does this mean for you? Keep reading to learn more.
Who is Eligible for Stimulus Money?
This new government stimulus bill dubbed the “Paycheck Protection Program,” (PPP) gives the Small Business Administration authorization to distribute the funds to businesses that apply and are approved.
But, who is eligible to apply?
This program is available to any small business that employees fewer than 500 people. This includes:
- Self-employed people
- Sole proprietors
- Independent contractors
- Private non-profits
- 501 (c)(19) veterans’ organization
The only caveat is that the business must be affected by the Novel Coronavirus (COVID-19).
Small businesses in the food and hospitality industry with more than one location may also qualify if each store has fewer than 500 employees. Some larger businesses may also qualify if they meet the SBA size standards for the industry.
In addition, the company must have been in business before February 15th, 2020 and must have paid employee salaries, payroll taxes, or independent contractors.
FAQs About the New Paycheck Protection Program
Even if you did all the right things to set your business up for success, there’s a good chance that you never anticipated the impact of a disruption of this magnitude. There are many startups that run on very small margins and need financial help now.
Take a deep breath, help is here. The following are the answers to the most frequently asked questions about the PPP.
How Much Can You Receive?
The amount you can receive is determined based on the amount you paid your employees between January 1st and February 29th, plus an additional 25 percent. The loan maximum is $10 million and the interest rate can be up to 4%.
Who Writes the Loans?
The loans, which are guaranteed by the Small Business Administration (SBA), will be provided via partner lenders. This will include banks, credit unions, and other lenders.
What Are the Loan Terms?
There are many elements of this loan program that make it extremely friendly for business owners. First, as long as the loan amount is used for one of the following, it will be fully forgiven:
- Payroll costs
- Mortgage interest
- Rent
- Utilities
Note that at least 75% of the forgiven amount must have been used for payroll. To receive forgiveness, you must either keep all of your employees on payroll or quickly rehire them and maintain their salary levels. If you don’t keep all of your employees on staff or you reduce their salaries or wages, your forgiveness amount will be reduced.
There are also no fees involved and no personal guarantees or collateral are required. This loan has a 2-year maturity and a 0.5% interest rate. Take a look at this sample application to see what information you’ll need if you decide to apply.
What is the Application Process?
You can apply through an existing SBA 7(a) lender or a participating federally insured credit union, depository institution (bank), or Farm Credit System institution. Your best bet is to start by asking your current lender if they’re participating in the program.
Lenders can begin processing loan applications as soon as April 3rd. The goal is for these loans to have very fast turn-around times, with some even having same-day approvals.
Other Assistance
What happens if you’re a single-owner startup or a sole proprietor who doesn’t run payroll? Or if the amount you’re approved for under PPP isn’t enough?
The good news is, you can also apply for a COVID-19 Economic Injury Disaster Loan (EIDL) advance for up to $10,000. The EIDL program allows for working capital loans of up to $2 million to help businesses overcome a temporary loss of income.
If your loan application is successful, you’ll receive your advance within three days. This advance does not have to be repaid. You can complete a streamlined application by clicking here.
This type of loan is designated to help businesses in disaster areas recover from the economic impacts. In response to COVID-19, the entire United States has been declared a disaster area, making businesses in all 50 U.S. states and territories eligible to apply.
The loans can be used to meet your payroll obligations, pay fixed debts, cover accounts payable, and cover other bills that can’t be paid due to the impact of COVID-19.
For businesses, the interest rate on the loan is 3.75%. Nonprofits will only pay 2.75%. The repayment period is determined on a case-by-case basis, but, to keep payments affordable, terms up to 30 years are available.
Will Your Startup Survive COVID-19?
While stimulus money is a great start to help your business during this trying time, for most, it won’t be enough. This situation will ultimately end up separating the strong and resourceful business owners from those who just don’t have the right tools and mindset to make it through.
Take steps today to ensure that you land squarely in the first category. Tweet me if you’ve applied, how the process was, and let us all know when you do see the monies come through to help everyone understand how long the process takes. We’re all in this together so please share what you know!
