Waiting On A Bailout, Small Businesses Wonder When And If They Will Be Assisted By Government Loan Programs
By Tina Traster
The medical director/owner of a local medical facility is taking a calculated gamble. He continues to pay his seven employees through the pandemic shutdown because his staff is trained for his medical specialty, and several of his employers have been with the practice for many years.
But the medical director says he’s made this decision based on the promise of government bailouts.
On April 3rd, he applied for a $10,000 grant from the EIDL (Economic Injury Disaster Loan) program. He was told he would hear back from the government within three to five days. That was a dozen days ago and he’s heard nothing.
On the same day, he applied for the Paycheck Protection Program (PPP), but he was unable to get access to the bank until four days later. A week has gone by and he’s heard nothing.
“I’m continuing to front payroll from my own pocket,” he said. “It would be very costly to me to lose my staff and to have to find and train new people. But I don’t know how many months I can sustain without recouping some of this loss.”
Similarly, a county-based home remodeler, is also depending on government assistance. He’s furloughed his employees but he needs inflow to maintain expenses. He’s unable to tap into customer deposits. On April 6th, he applied for a $10,000 EIDL loan and was told it would take a week for his request to be processed. He’s heard nothing to date.
Businesses across Rockland and beyond are nervously fretting over whether the government’s promises to bail them out will materialize.
“Show us the money,” said the remodeler. “We’re not all going to be able to weather this. We need help.”
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In the meantime, Gov. Andrew Cuomo and governors from New Jersey, Connecticut, Pennsylvania, Delaware, Massachusetts and Rhode Island, are forming a coalition to begin to formulate a plan to re-open society. How that process will affect granting of loans remains to be seen.
GUIDE TO GOVERNMENT LOANS
The Paycheck Protection Program is a provision of the CARES Act. It’s a $349 billion program intended to provide American small businesses with eight weeks of forgivable low-interest loans to retain workers, maintain payroll and cover certain other existing overhead costs. The loan will be forgiven as long as business owners use 75% of the money to keep their workforce going without cutbacks, layoffs or furloughs. The maximum loan granted from the PPP will be equal to 2.5 times the average monthly payroll costs for the previous calendar year, up to $10 million.
Another program that exists to help small businesses is the Small Business Administration’s Economic Injury Disaster Loan, or EIDL program, which offers low-interest loans for small businesses as they deal with closures and social distancing measures.
“Four weeks ago when it was very obvious that the pandemic was going to have a huge impact on America’s economy, we adopted a very simple principle — that is no business and no family should be bankrupted because of a temporary economic disruption caused by the coronavirus,” said Tom Sullivan, vice president of small business policy at the U.S. Chamber of Commerce. “We then lobbied Congress and the president to pass three laws in three weeks. In each three of these laws there are provisions intended to help small businesses.”
Who is eligible Paycheck Protection Program?
Wharton said any small businesses and nonprofits with a tax identification number and fewer than 500 employees may be eligible for a loan through the PPP if they have been negatively impacted by the pandemic. The PPP is intended to pay for eight weeks up to $10 million of a business’s payroll costs, so the company can retain workers or hire back those it has already laid off. For businesses that use the money to retain staff and pay for basic expenses, the loan becomes a grant.
What are the terms for funds that are not forgiven?
The interest rate is 1% on funds that are not forgiven with no payments for the first six months of the loan. The loan comes due in two years, and there is no penalty for paying it off early. However, if a business uses 75% of the loan proceeds for payroll and the additional 25% on specific things, such as utilities, rent, mortgage interest and the interest on prior debt obligations, the loan will be forgiven.
Where can businesses go to apply for a PPP loan?
Local businesses should go to the bank where they have a relationship, and work with the bankers they know and the ones who know their business. The bank will calculate their average monthly payroll for 2019, and confirm the numbers. Then it will multiply that by 2.5 and that’s the loan amount.”
Here’s How It Works
The bank funds the loan, not the SBA, and the small business gets their money. The business collects payroll data for the next eight weeks because the intent of this program is to put people back to work. After eight weeks, they give us proof of their payroll, the benefits, insurance, retirement and then they can also apply for rent and utilities and that amount of money is actually forgiven on that note. “The SBA pays the bank, we take the money to pay off the loan and the customer goes on their way,” explained Sullivan.
Sullivan said while the money in the PPP loans are slated to keep employees working and being paid, business owners can use some of that money as a short-term loan.
What is the Economic Injury Disaster Loan program?
The EIDL was around long before the COVID-19. It was created to help small businesses reopen or keep the doors open when disaster strikes.
However, EIDL has seen some changes as the federal government continues to look for ways to support small businesses with an EIDL emergency grant advance. That money, up to $10,000, is considered a grant when used for certain things.
Who is eligible for EIDL?
The program can provide up to $2 million of financial assistance based on the amount of economic injury to small businesses (fewer than 500 employees), sole proprietorships with or without employees, independent contractors, cooperatives and employee-owned businesses and nonprofit organizations.
EIDLs can help small businesses meet the necessary financial obligations they could have met had the disaster not occurred. The loans provide relief from economic injury caused directly by the disaster and permits you to maintain a reasonable working capital position during the period affected by the disaster.
Businesses must fill out the SBA loan applications; provide tax information authorizations; complete copies of most recent federal income tax return; provide a schedule of liabilities, personal financial statement, income balance sheet and cash flow documents. The criteria for loan approval include meeting certain criteria, a credit history and the ability to repay the loan.
What are the terms for EIDL?
EIDL provides up to $2 million in working capital for a 30-year fixed term. The SBA has deferred all payment of interest and principal for a year. The interest rates are 3.75% for businesses and 2.75% for nonprofits. Collateral is not required for EIDLs under $25,000. The SBA takes real estate as collateral when it is available and will not decline a loan for lack of collateral but requires borrowers to pledge what is available.
If you already applied for the EIDL does that mean you automatically requested the $10,000 grant?
Businesses that applied before March 30 will need to reapply to be eligible.
“If you applied for an EIDL loan before March 30 that box was not on the application, because it hadn’t been an executable component of the law yet,” Sullivan said. “Re-applying does not bump you to the back of the queue, and they match up the names and taxpayer identification numbers to make sure that you’re not applying twice.”
The number of employees a business supports will determine the amount of the grant with the maximum grant being $10,000.
Are EIDLs forgiven?
EIDL loans cannot be forgiven but can be refinanced under PPP. The application for an EIDL can be found at https://covid19relief.sba.gov/#/
More information about both programs can be found at the Small Business Association website at sba.gov/disaster
Is there still time to get help?
The deadline to apply for a PPP loan is June 30. Business owners have until Dec. 16 to apply for EIDLs.