Congress recently approved the CARES Act, a federal bill to provide economic relief for individuals and businesses in light of the COVID-19 pandemic.
One major component of the CARES Act is the Small Business Paycheck Protection Program, which provides small businesses with enough funds to pay up to eight weeks of payroll costs, including benefits. These funds can also be used to pay interest on mortgages, rent, and utilities.
These funds come in the form of loans that may be fully forgiven when used for payroll costs, interest on mortgages, rent, and utilities. Loan payments will be deferred for six months, and no collateral or personal guarantees are required. Small businesses will not be charged fees by either government or lenders.
Important points to keep in mind:
- Loan forgiveness depends on businesses keeping employees on the payroll, or rehiring employees quickly while maintaining salary levels. At least 75% of the loan amount must be used for payroll expenses in order for the loan to be fully forgiven, and loan forgiveness will be reduced if salaries decrease, or if the number of full-time employees declines.
- All small businesses are eligible. This means a business with 500 employees or less and includes nonprofits, veterans’ organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors.
- All loans will have the same terms, regardless of the lender or borrower.
- Unemployment benefits have been extended to self-employed workers, independent contractors, and those with limited work history. Unemployment insurance provisions now include an additional $600 per week payment to each recipient for up to four months.
When and how to apply
Banks are expected to begin accepting applications on April 3, 2020. Apply as quickly as possible, as there is a funding cap.
Business owners can download the application online (pdf), fill it out, and take it to any existing SBA 7(a) lending partner, federally insured bank, or federally insured credit union to officially file it. (These institutions may allow for submission via email on their website.) Business owners may be asked to provide their tax and payroll information, as well as information about their rent and utility costs.
SBA Disaster Loans
In addition to the Small Business Paycheck Protection Program, businesses can also apply for Economic Injury Disaster Loans (EIDL) through the U.S. Small Business Association or SBA.
The SBA’s Economic Injury Disaster Loans provide targeted, low-interest recovery loans of up to $2 million to small businesses, small agricultural cooperatives, and some private nonprofit organizations. As of March 20, businesses throughout the entire state of Texas can apply.
Important points to keep in mind about SBA Loans:
- The CARES Act, mentioned previously, also includes an opportunity to get up to a $10,000 advance on an SBA Economic Injury Disaster Loan. This advance may be available even if your EIDL application was declined or is still pending, and it will be forgiven. If you wish to apply for the advance on your EIDL, visit the SBA website as soon as possible to fill out a new, streamlined application. In order to qualify for the advance, you’ll need to submit a new application even if you previously submitted one already. Applying for the advance will not impact the status of, or slow down your existing application.
- The SBA offers other financial solutions, such as:
- The 7(a) program, which offers loan amounts up to $5,000 for working capital, purchase of equipment, fixtures, refinancing debt, seasonal line of credit, inventory, starting a business, and more.
- The Express Loan program, which provides loans up to $350,000 for no more than seven years with an option to resolve. The approval/denial of these loans has a turnaround time of 36 hours, and proceeds can be used for the same things as a 7(a) loan.
- The Community Advantage Loan pilot program allows mission-based lenders to assist small businesses in under-served markets with a maximum loan of $250,000.
- Businesses can apply for both the Small Business Paycheck Protection Program and an EIDL loan, so long as each loan covers different operational costs.
For more information about these and other financial resources for businesses in Fort Worth, keep an eye on the city’s COVID-19 Business Resources page, which is being updated as information becomes available.