Last week a $2 trillion stimulus package giving aid to small businesses impacted by the COVID-19 outbreak was signed into law. Wondering what this means for your business? Unsure how to apply for a loan? Read on.
U.S. Chamber Executive Vice President and Chief Policy Officer Neil Bradley joined Inc. Editor-at-Large Kimberly Weisul for a virtual National Small Business Town Hall on Friday to explain it all. We recapped some of Bradley’s advice below. Missed the event? Watch it here.
For a detailed roadmap on receiving a loan, check out the U.S. Chamber’s Small Business Emergency Loans Guide & Checklist, and explore more resources tailored to small businesses here.
What’s In It For Me?
There are several loan programs for businesses of all sizes through the SBA, but the most important one for small businesses is the Paycheck Protection Program. It’s a loan — that essentially converts into a grant if business owners follow all the requirements — for businesses with fewer than 500 employees. Its purpose is to help businesses maintain their headcount during this period of disruption. Congress allocated more than $350 billion for the program, or roughly the amount to cover payroll for all small businesses for six weeks.
- Details: Interest is to be no more than 4% and the amount applicants receive is based on a calculation of average monthly payroll cost multiplied by 2.5, to cover two and a half months of payroll (including healthcare costs and paid sick leave). The maximum loan amount a business owner can receive is $10 million.
- What if I had to let employees go already? You won’t be penalized if you plan to bring them back. When you apply for the loan, you’ll be able to base your payroll calculation on your total employees. If you use the loan to bring them back, and they stay with you, you are eligilible for full loan forgiveness.
Who is Eligible?
Small businesses with fewer than 500 employees that would normally qualify for loans from the Small Business Administration (SBA). Plus, this loan program expands eligibility to 501 c3 nonprofits with fewer than 500 employees, certain veterans organizations, sole proprietors, the self-employed, and individual contractors (1099 workers). There is also expanded eligibility for small businesses in the hospitality and food industry with more than one location – these businesses can be eligible at the store and location level if the store employs less than 500 workers.
- Tip: Head to SBA.gov where you can search by code to see what your business may qualify for.
What Should a Small Business Owner Do Right Now?
Have a plan. Just because your business may be eligible for a loan, does not mean that’s the best decision for your business. Weigh the pros and cons. If you know you can’t meet the requirements needed to get the loan forgiven, evaluate the risk of debt. Find the right loan for you, research it’s qualifications, and get your paperwork ready.
- What Paperwork? SBA has simplified the process, but at minimum, business owners need to pull together average monthly payroll costs before going to a lender.
When Will I Get My Loan?
Typically, it can be cumbersome to receive a loan through SBA, but previous barriers have been removed. Plus, the government is approving as many lenders as possible hoping that:
Lots of Lenders + Reducing Paperwork = Money to Businesses Quickly.
Bradley estimates that by the end of the week many businesses will have applied for these loans and will be waiting for their funds.
What Are Some Caveats?
- Make sure you can meet the requirements to have your loan forgiven. Be aware that if you reduce the number of employees after loan origination, you may get a reduced dollar amount in loan forgiveness.
- If you are considering laying off employees or furloughing employees, be sure to look obstacles with health insurance plans. Every employer should be talking with their broker to understand if a plan allows for temporary furlough, says David Barron, an employment attorney at Cozen O’Connor who participated in the town hall. Barron also serves as the head of the firm’s coronavirus task force.
- Laying off employees should be a last resort, Barron says, because you need to consider other federal and state laws. For example, if you have enough people over 50 years old who suffer employment loss, the Warren Act comes into play. Many states also require notice when employers change salaries.
What Strategies Should I Think Through?
- If you’re considering laying off employees: Barron says it’s always riskier to layoff employees, as there are many termination laws and hoops to jump through. The loan program was created to allow businesses to avoid those risks by giving them tools to keep people on their payrolls for the next two to three months.
- If you’re struggling and are afraid you will not remain eligible for the loan: Experts say to make your best judgement call about the future. Think though when normal commerce will resume – will you be able to call employees back quickly and keep them on payroll? How will that cost affect your business?
- If you already applied for an Economic Injury Disaster Loan through the SBA: You may want to consider rolling it over into one of the new payroll protection loans, if that’s a program that would benefit your business.
- Communicate! As you are working through making decisions for your business, be sure to communicate with your employees with as much transparency as possible. Get their opinions, and lead with empathy. Do the same with your customers.
