According to the U.S. Small Business Administration (SBA), in 2018 over 30 million small businesses accounted for 99.9 percent of the total businesses in the United States. Over 59 million small business employees accounted for 48% of the total employees across the country.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was passed and signed into law by President Donald Trump on March 27 to address COVID-19’s economic impact. Under the act’s Paycheck Protection Program (PPP), private banks are now able to make loans backed by the SBA. Community banks are set to play a particularly large role in the distribution of PPP funds.
The application process for PPP loans is on a first-come, first-served basis. On April 3, the first day of the program, a total of 987 banks nationwide had disbursed nearly 13,000 loans worth over $4 billion. Because of this, small business applicants may experience technological difficulties and/or delays when applying.
First Mountain Bank, Community Banks of Colorado and Pueblo Bank & Trust are all set to offer the PPP program locally.
Leadville Lake County Economic Development Corporation Business Mentor John Trenary partnered with the Herald to answer questions about the CARES Act’s financial resources for small businesses. His answers are as follows:
— Are paycheck protection loans free?
They can be, if they’re used to retain or hire workers. The SBA is now guaranteeing $349 billion in potentially forgivable loans under the rescue package.
A business with up to 500 employees, including owners who work solo and freelancers, can borrow up to $10 million to be repaid over two years at an annual rate of 1%. The money that’s used to pay salaries can be forgiven, and a portion of money used for rent, mortgage interest and/or utilities can be at least partially forgiven. Payments are deferred for six months.
A business can technically get the full amount of the loan forgiven. But if a business owner cut jobs — say an individual had 10 employees, let them go, and hired back only five — the amount of loan forgiveness would be reduced, and the business owner would have to repay some. According to the government, because so many owners are expected to take advantage of the loans, it’s anticipated that no more than 25% of the forgiven amount may be for things other than payroll — for example, rent, mortgage interest and utilities. So, there’s a good chance business owners will have some repayments ahead.
— When will my loan be forgiven?
The government will calculate how much of a loan will be forgiven after June 30. The program covers the period from Feb. 15 through June 30 and owners will need to document how many workers they employed during that time and how much they were paid. If a business owner has laid off workers, he or she has until June 30 to rehire them. The sooner a business owner rehires and starts paying employees, the larger the individual’s loan forgiveness will be.
— Can I get a disaster loan too?
The SBA is giving out economic injury disaster loans. These loans are intended to help companies whose revenue losses have left them without working capital, making it difficult or impossible to pay operating expenses including payroll, fixed debt payments and accounts payable bills. A company that receives a disaster loan cannot use the money for payroll purposes if it’s also getting a paycheck protection loan.
The disaster loans give owners up to $2 million at an annual rate of 3.75%. The loans can be taken out for as many as 30 years, but the terms of each loan will be determined on a case-by-case basis and will depend on each company’s financial situation.
Companies can also apply for a $10,000 loan advance that can be granted within three days, the SBA says. This does not have to be repaid. Disaster loan applications are made directly through the SBA on its website https://covid19relief.sba.gov/.
— Can freelancers get unemployment benefits and a loan at the same time?
Yes. The rescue package provides for unemployment benefits for freelancers and independent contractors who haven’t qualified for such help in the past. So, millions of people, including wedding photographers, graphic artists, musicians and writers who have lost gigs or projects can get unemployment benefits. Though freelancers are also eligible for paycheck protection loans, they cannot use disaster 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. The details have not been announced yet. Individual states, counties and cities may have loans or grants for small businesses. Those that have not announced any programs may yet create them as the COVID-19 outbreak has likely not yet reached its peak. Check online with your state or local agencies that support small businesses such as the Leadville Lake County Economic Development Corporation.
— What about online lending?
Online lenders promise fast money. Some such lenders turn loans around the same day and even in the best of times, many companies with cash flow crunches turn to them. But in many cases, the money carries a steep interest rate and/or big payments. And unlike traditional loans, the size of a payment may not be predictable; companies like PayPal, for example, will take a percentage of revenue that comes into a borrower’s account.
Keep in mind that even if a business owner ends up paying back the full amount borrowed under the Paycheck Protection Program, the individual would pay just 0.5% over two years.
Under the PPP, small business owners will be able to apply for up to eight weeks of cash-flow assistance at their local bank or at any one of the SBA’s approved lenders. Potentially, as long as the loans go towards things like maintaining all employees’ salaries and keeping the lights on and the doors open, they may be forgiven in full.
How do I apply for paycheck protection loans?
Business owners can apply online through any federally insured bank, credit union or farm credit system institution website, not just a traditional SBA lender. Some businesses owners could get money the same day he or she applies, unlike the weeks it takes when applying for a traditional SBA loan.
Though business owners do not need collateral or a personal guarantee, they will need to document payroll, rent, mortgage interest and utilities expenses. The payroll portion of the loan is based on the monthly average of what a company paid employees during the year prior to the loan being granted.
Because the application process for PPP loans is on a first-come, first-served basis, small business applicants may experience technological difficulties and/or delays. Be persistent and not become discouraged; glitches can be expected in huge roll outs like this.
Locally, the Colorado Small Business Development Center Network is offering two counselors to assist Lake County businesses with free, confidential consulting to help with PPP loan applications, unemployment questions and more. Visit https://clients.coloradosbdc.org/reg.aspx?mode=counsel&center=2400&subloc=0 to request an appointment.
Learn more about the SBA loans and the online application process at https://www.sba.gov/funding-programs/loans/paycheck-protection-program-ppp.
From our sister paper the Leadville Herald at www.leadvilleherald.com