U.S. Small Business Administration Loan Programs
The U.S. Small Business Administration (SBA) offers a number of programs to help support small businesses—from counseling to making loans. Several new SBA initiatives have now been developed to help businesses address the Coronavirus challenges. Specifically, the SBA 7(a) loan program has been expanded to include Paycheck Protection Program loans and a new SBA Coronavirus disaster loan program has been created.
- CARES Act: The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) became law on March 27, 2020. It provided $349 billion in private-sector loans to help small businesses pay their employees and bills. Another $320 billion was added to the program on April 27, 2020 and additional funds may be added later this summer if necessary. The definition of “small business” is generally 500 employees but for motor vehicle parts manufacturers, the definition ranges from 1,000 to 1,500 employees.
- PPP Flexibility Act: The original program loan requirements were modified on June 5, 2020 to provide employers more flexibility on how funds are spent. The following PPP description reflects the updated requirements.
- Loan Amount: PPP loans equal the average of one month’s 2019 payroll multiplied by 2.5 (capped at $10 million).
- Use of Funds: PPP funds can be used to cover payroll, mortgage or rent payments, utilities and other specified expenses. At least 60% of the amount to be forgiven must be spent on payroll, which includes employee benefit costs for vacation, sick/parental leave, insurance premiums, retirement benefits, and state and local taxes.
- Interest Rate and Repayment Terms: The loan interest rate is 1%. Repayments on any amount not forgiven is deferred at least 10 months after the end of the covered period, with a two-year term for loans given before June 5 and five-year term for loans on or after that date. The law waives collateral and personal guarantee requirements in addition to borrower and lender fees.
- Amount Forgiven: The SBA will forgive that portion of the loan used to cover payroll, rent payments, mortgage interest, and the cost of utilities for a fixed period-of-time. The employer may choose the covered period, either: (a) 8 consecutive weeks from when the loan was received, or (b) up to 24 weeks from when the loan was received or on Dec. 31, 2020, whichever comes first.
When lawmakers enacted the CARES Act, they did not anticipate lengthy stay at home orders, which have made it difficult for employers to rehire workers. The 24-week time-period gives employers more time to spend forgivable funds between now and the end of the year since the loan amount equals about 10 weeks (2.5 times one-month 2019 payroll).
- Rehiring Workers: Employers have until December 31, 2020 to rehire workers and have their salaries count towards forgiveness.
- Payroll Taxes: Businesses receiving a PPP loan may also defer payment of 2020 payroll taxes.
- Apply Now: Small businesses, independent contractors, and self-employed individuals can apply by completing and submitting the PPP loan application with the required documentation to an approved lender. The deadline for approving an application is June 30, 2020. We encourage you to apply as quickly as you can because there is a funding cap. Click here for more information.
- Find a Bank: Companies looking to apply for PPP loans are encouraged to use the SBA’s "Find Local Lenders" page to locate the financial institutions closest to you that are writing PPP loans. It’s easy—just type in your zip code.
- The U.S. Department of the Treasury is backing the PPP and has provided the following information in coordination with the Small Business Administration:
- The SBA established a Coronavirus disaster loan program with low-interest loans for small businesses and non-profits (3.75% and 2.75% respectively) that have been severely impacted by COVID-19. The SBA’s Coronavirus Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $150,000 to help overcome temporary revenue loss. Loans may be used to pay fixed debts, payroll, accounts payable, and other bills that can’t be paid because of the disaster’s impact. A loan advance of up to $10,000 does not have to be repaid although the forgivable grant has been capped at $1,000 per worker due to demand.