Small Business Financing Options

Small business owners applying for loan

Small Businesses may apply for BOTH of the following:

1. Paychex Relief Program

Question: How does it work?

Currently, the SBA guarantees small business loans that are given out by a network of more than 800 lenders across the U.S. The Paycheck Protection Program creates a type of emergency loan that can be forgiven when used to maintain payroll through June and expands the network beyond SBA so that more banks, credit unions and lenders can issue those loans. The basic purpose is to incentivize small businesses to not lay off workers and to rehire laid-off workers that lost jobs due to COVID-19 disruptions. If employers maintain their payroll, the loans would be forgiven, which would help workers remain employed, as well as help affected small businesses and our economy snap-back quicker after the crisis. PPP has a host of attractive features, such as forgiveness of up to 8 weeks of payroll based on employee retention and salary levels, no SBA fees, and at least six months of deferral with maximum deferrals of up to a year. Small businesses and other eligible entities will be able to apply if they were harmed by COVID-19 between February 15, 2020 and June 30, 2020. This program would be retroactive to February 15, 2020, in order to help bring workers who may have already been laid off back onto payrolls. Loans are available through June 30, 2020.

Question: What businesses are eligible?

The Paycheck Protection Program offers loans for small businesses with fewer than 500 employees, select types of businesses with fewer than 1,500 employees, 501(c) (3) non-profits with fewer than 500 workers and some 501(c) (19) veteran organizations. Additionally, the self-employed, sole proprietors, and freelance and gig economy workers are also eligible to apply. Businesses, even without a personal guarantee or collateral, can get a loan as long as they were operational on February 15, 2020.

Any business concern that employs not more than 500 employees per physical location of the business concern and that is assigned a NAICS code beginning with 72 (Accommodation and Food Services), for which the affiliation rules are waived.

Affiliation rules are also waived for any business concern operating as a franchise that is assigned a franchise identifier code by the Administration, and company that receives funding through a Small Business Investment Company.

Question: What loan sizes are available?

The maximum loan amount under the Paycheck Protection Act is $10 million, with an interest rate no higher than 4%. No personal guarantee or collateral is required for the loan. The lenders are expected to defer fees, principal and interest for no less than six months and no more than one year.

If you were in business February 15, 2019 – June 30, 2019: Your max loan is equal to 250 percent of your average monthly payroll costs during that time period. If your business employs seasonal workers, you can opt to choose March 1, 2019 as your time period start date.
If you were not in business between February 15, 2019 – June 30, 2019: Your max loan is equal to 250 percent of your average monthly payroll costs between January 1, 2020 and February 29, 2020.
If you took out an Economic Injury Disaster Loan (EIDL) between February 15, 2020 and June 30, 2020 and you want to refinance that loan into a PPP loan, you would add the outstanding loan amount to the payroll sum.

Question: What are the affiliation rules?

Affiliation rules become important when SBA is deciding whether a business’s affiliations preclude them from being considered “small.” Generally, affiliation exists when one business controls or has the power to control another or when a third party (or parties) controls or has the power to control both businesses.

Question: What Costs are eligible for payroll?

The following costs are eligible:

Compensation (salary, wage, commission, or similar compensation, payment of cash tip or equivalent)
Payment for vacation, parental, family, medical, or sick leave
Allowance for dismissal or separation
Payment required for the provisions of group health care benefits, including insurance premiums
Payment of any retirement benefit
Payment of State or local tax assessed on the compensation of employees

Question: What costs are not eligible for payroll?

The following costs are eligible:
Employee/owner compensation over $100,000
Taxes imposed or withheld under chapters 21, 22, and 24 of the IRS code
Compensation of employees whose principal place of residence is outside of the U.S.
Qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act

Question: What are allowable uses of loan proceeds?

Loan proceeds can be used for the following:

Payroll costs (as noted above)
Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
Employee salaries, commissions, or similar compensations (see exclusions above)
Payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation)
Rent (including rent under a lease agreement)
Utilities
Interest on any other debt obligations that were incurred before the covered period

Question: Where do I apply?

SBA will be updating as more information becomes available.

Take note of distinctions regarding application forms, supporting documentation forms, and home and sole proprietor loan documents. Check “Economic Injury (EIDL)” on the form. You’ll have to provide information like organization type, a Federal EIN, contact information, and personal information related to business owners.

Question: Are loans forgivable?

Recipients of a loan made under the Paycheck Protection Program will be eligible for loan forgiveness in an amount equal to the sum of the following costs incurred and payments made during an eight-week period beginning on the date of the loan origination:

payroll costs (including insurance premiums)
interest payments on any covered mortgage obligation incurred before Feb. 15, 2020
payment of rent under a lease in force prior to Feb. 15, 2020
utility payments for which service began before Feb. 15, 2020

Any loan amounts not forgiven at the end of one year is carried forward as an ongoing loan with terms of a max of 10 years, at max 4% interest.

Question: How do I get forgiveness on my loan?

You must apply through your lender for forgiveness on your loan. In this application, you must include:

Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and State income, payroll and unemployment insurance filings.
Documentation verifying payments on covered mortgage obligations, lease obligations, and utilities.
Certification from a representative of your business or organization that is authorized to certify that the documentation provided is true and that the amount that is being forgiven was used in accordance with the program’s guidelines for use.

Question: What happens after the forgiveness period?

Any loan amounts not forgiven are carried forward as an ongoing loan with max terms of 10 years, at a maximum interest rate of 4%. Principal and interest will continue to be deferred, for a total of 6 months to a year after disbursement of the loan. The clock does not start again.

Question: Can I get more than one loan?

No, an entity is limited to one loan that will be linked the employers Taxpayer Identification Number.

Question: Where should I go to get a loan?

All current SBA 7(a) lenders are eligible lenders. If you already have a relationship with a SBA lender, please contact them directly. The Department of Treasury will also be in charge of authorizing new lenders, including non-bank lenders, to help meet the needs of small business owners.

Question: How does the new loan coordinate with SBA’s existing loans?

Borrowers may apply for PPP loans and other SBA financial assistance, including Economic Injury Disaster Loans (EIDLs), 7(a) loans, 504 loans, and microloans, and also receive investment capital from Small Business Investment Corporations (SBICs). However, you cannot use your PPP loan for the same purpose as your other SBA loan(s). For example, if you use your PPP to cover payroll for the 8-week covered period, you cannot use a different SBA loan product for payroll for those same costs in that period, although you could use it for payroll not during that period or for different workers.

2. Economic Injury Disaster Loan Program (EIDL)

Question: What is an EIDL and for what is it used?

EIDLs are lower interest loans of up to $2 million, with principal and interest deferment at the Administrator’s discretion, that are available to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses.

Question: Who is eligible for an EIDL?

Open to virtually all businesses less than 500 people:
Sole proprietorships (with or without employees)
Independent contractors
Cooperatives and employee owned businesses
Tribal small businesses

EIDLs are now also available to Tribal businesses, cooperatives, and ESOPs with fewer than 500 employees. They are also available to all non-profit organizations, including 501(c) (6) s, and to individuals operating as sole proprietors or independent contractors.

Those eligible for an EIDL and who have been in operation since January 31, 2020, when the public health crisis was announced.

Question: How long are the grants available?

The grants are backdated to January 31, 2020 to allow those who have already applied for EIDLs to be eligible to also receive a grant.

Question: Can I get the PPP loan if I get an EIDL?

Whether you’ve already received an EIDL unrelated to COVID-19 or you receive a COVID-19 related EIDL and/or Emergency Grant between January 31, 2020 and June 30, 2020, you may also apply for a PPP loan. If you ultimately receive a PPP loan or refinance an EIDL into a PPP loan, any advance amount received under the Emergency Economic Injury Grant Program would be subtracted from the amount forgiven in the PPP. However, you cannot use your EIDL for the same purpose as your PPP loan. For example, if you use your EIDL to cover payroll for certain workers in April, you cannot use PPP for payroll for those same workers in April, although you could use it for payroll in March or for different workers in April.

Question: How do I know if my business is a small business?

You will need the 6-digit North American Industry Classification Code (which can be looked up at https://www.naics.com/search/) for your business and your business’s 3-year average annual revenue. Also, you can visit https://www.sba.gov/size-standards/

Question: How do I apply for an economic injury disaster loan?

Applications can be completed online at https://disasterloan.sba.gov/ela/

Additional information:

EIDLs can be approved by the SBA based solely on an applicant’s credit score.
EIDLs that are smaller than $200,000 can be approved without a personal guarantee.
Borrowers can receive a $10,000 emergency grant cash advance that can be forgiven if spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments or repaying obligations that cannot be met due to revenue losses.