In the wake of the Covid-19 pandemic, businesses have not been operating as usual. Small businesses have been significantly affected by this pandemic since they rely on most affected people as their clients. Therefore, the need to sustain themselves through the pandemic only depends on small business loans. Small Business Loan Advisor has been at the forefront of advising small businesses in accessing loans that would help sustain themselves. We are a team of lawyers who will help you through your SBA loan applications for various Covid 19 funding options.
How Covid-19 Has Affected Small Businesses
The Coronavirus pandemic has affected most businesses all over the country. Since most cities announced the closure of businesses, while others have gone into lockdown, it is almost certain that small businesses are significantly affected. Such types of businesses rely on the day to day availability of people to run, and the total lockdown of cities would prevent them from operating.
Small businesses that rely on hourly employees have been significantly affected by the pandemic. The number of employees dropped substantially, leading to the forced closure of most businesses.
Furthermore, most small businesses rely on a broader supply chain that involves different states and countries as well. Initially, the United States had less infection compared to European and Asian countries. Since the United States rely on these countries in one way or another to run most businesses, their total lockdown would affect us in one way or another. One of the significant ways that businesses were affected is the cancellation of flights from the primary partner countries in Europe and Asia, leading to a drop in the number of imports against rising demand.
There are several factors related to the Covid-19 pandemic and how they affected small businesses. However, the only hope that would determine the survival of such businesses would be small business loans that are available during this kind of situation.
Understanding Small Business Loans
Of all small business financing, Small Business Administration loans are the best options for financing your enterprise. The federal agency guarantees this type of loan to provide access to loans with low-interest rates and flexible terms. This kind of loan can significantly help a business grow without the worry and need for crippling debts.
SBA usually guarantees up to 85% of loans worth $150,000 or less and 75% of loans worth the same amount. The maximum loan that one can get is $5 million. There are several types of SBA loans. Here is a summary of these loans.
7(a) Loan Program
This is a federal guaranteed type of loan that can reach a maximum of $5 million. It is suitable for working capital, purchase of equipment, and expansion. Borrowers can have this type of loan processed through specialized lenders, banks, and credits.
504 Loan Program
This is a federal loan that can reach a maximum of $5 million. Borrowers use this kind of loan in buying machinery, facilities, and land. Borrowers can have this 504 loan program processed through nonprofits and private-sector lenders.
Microloans
This is a type of loan that amounts to a maximum of $50,000. Borrowers use it in inventory equipment and to start a business. It is processed through community based-on profits.
SBA Disaster Loans
This is a type of loan that reaches up to $2million. Businesses seek this loan when they are affected by natural disasters or other emergencies. This kind of loan is processed through the Small Business Administration.
Types of SBA Disaster Loans Available During the Coronavirus Pandemic
Due to the Coronavirus pandemic, the United States Congress overwhelmingly passed The Coronavirus Aid, Relief, and Economic Security (CARES) Act. The Act was passed into law by President Donald Trump on 27th March 2020. The Act guarantees over $2 trillion of economic relief as a commitment of protecting the American People, the public health, and businesses from the financial impact that Covid-19 would bring forward.
Under the SBA program, business people can find loans such as the Paycheck, Protection Program, Economic Injury Disaster Loans and Emergency Grants, and the Small Business Debt Relief. Let’s have a closer look at these disaster loan options.
The Paycheck Protection Program
This type of loan aims to give incentives to small businesses to keep their workers on the payroll during disasters. SBA usually forgives loans to employees if they remain on the payroll for eight weeks, and the money that they get is used for mortgage, utilities, rent, and payroll.
One can apply through an existing SBA 7 (a) lender, a depository institution, Farm Credit System, and federally insured credit union. Other regulated lenders can be available to provide these loans once they get approval and enroll in the program. You should consult with your local lender to determine whether they are part of the program before you continue with the applications.
These types of loan applications began to be processed starting from 3rd April 2020 and will be available until 30th June 2020.
In summary, the highlights that apply in this sort of program are as follows:
- All businesses are eligible
- There is no need to repay the loan for the first six months
- No fees are included
- The loan covers for eight weeks since the loan origination date
- The loan is forgivable and can be turned to a non-taxable grant
One of the primary requirements in the Paycheck Protection Program is having a payroll cost. A payroll cost would consider the following:
- The salary, commission, wages, or tips capped at $100,000 annually for every employee
- Employee benefits such as parental, vacation, family, medical, sick leave allowance, or dismissal. It also includes payment needed for the provision of group healthcare benefits such as retirement benefits and insurance premiums
- Local and state taxes assessed on compensation
- Commissions, income, net income, or net earnings for self-employment capped at $100,000 annually. This applies to independent contractors and sole proprietors.
Most payroll costs are covered, but the PPP does not cover scenarios such as payment done to independent contractors, S corps and C corps owners without payroll.
Concerning the $100,000 salary cap, your individual earning within a year should fall within this limit. Anything above that does not include as part of the payment needed for the payment. For instance, if you earn $120,000, you need to subtract the $20,000 from your salary to receive the funding. This would amount to an average of $ 8,333.33 per month. The same applies to independent contractors and sole proprietors.
Maximum Funding In Paycheck Protection Program
The maximum receivable amount for PPP is $10million. This would apply to an average payroll cost of 2019. For seasonal employers, the monthly average would be different. The lender will consider 12 weeks to determine how much you need for the loan.
Application Process
The Small Business Administration does not lend money but usually works as a backing for the loan that your lender will provide. Sole proprietorship was expected to apply by 3rd April, while independent contractors and self-employed people are expected to apply by 10th April. Businesses were required to apply early enough since the program has a funding cap that would render them the loan.
During the application process, you are required to consider the following as the verification process:
- Your current market uncertainty that makes the loan necessary for your business’s ongoing operation
- That the funds will be used to retain workers, repay mortgage interest, lease and pay their utility bills
- That you will maintain one loan through the program
- Documents that prove the number of employees on the payroll, rental payment covered by the employer, covered utilities for eight weeks after getting the loan
- Your acknowledgment that the lender will calculate the amount eligible for the credit using the tax documents
You will also have to submit your financial documents such as the payroll processor records, tax filings, tax forms of 2019, such as form 941, W-3, and 940, Schedule C if you are a sole proprietor and form 1099- MISC records.
If your employees get paid through your payroll, you should download a payroll report using payroll provider to get your financial information more easily. Those who own more than one business and do not have separate finances should separate their bookkeeping for every business to get the financing. This is necessary when proving your finances during the loan forgiveness process.
Loan Forgiveness
Funding received through the paycheck protection program can be forgiven after eight weeks of the loan signing date. Your payroll, rent, mortgage interest, and utilities can be forgiven.
For one to be forgiven, he or she must have accurate bookkeeping to prove your expenses during the loan period. You should also need to have spent 75% of the loan to qualify for forgiveness. Finally, the lender should decide within sixty days about your applications.
Economic Injury Disaster Loan Advance
During this Coronavirus pandemic, a small business within the United States has the eligibility to apply for an Economic Injury Disaster Loan Advance, which reaches to a maximum of $10,000. This loan aims at providing economic relief to businesses that have a temporary loss of revenue.
The Economic Injury Disaster Loan Advance (EIDL) is suitable for any small business with less than 500 employees. This includes independent contractors, sole-proprietorship, and self-employed individuals.
Businesses within specific industries might also be eligible for the advance if they meet the SBA standard size recommended for such industries. It is available within days after application and is not supposed to be repaid.
For anyone who intends to get this kind of funding, several conditions must be adhered to. These conditions are as follows:
- One can borrow to a maximum of $200,000 without having a personal guarantee
- You do not have to repay your first-year tax returns, and your application can be approved without considering your credit score
- Borrowers do not have to prove that they can get the credit elsewhere
- No collateral is needed for loans of $25,000 or less. However, for loans above $25,000, you might require to provide a general security interest through your business asset
- The SBA must review your business tax record to help you through the approval process
Express Bridge Loans
This kind of loan allows small businesses with a relationship with the SBA Express Lender to access a quick loan of $25,000. Express Bridge Loans provide crucial economic support to small businesses and help them undergoing a pandemic. It works as a bridge that avoids loss of revenue when applying for SBA Economic Injury Disaster Loan. If a business is in urgent need of cash while waiting for disbursement of the Economic Injury Disaster Loan, it might qualify for the SBA Express Disaster Bridge Loan.
The maximum interest rate for this funding can be fixed or viable. The prime rate can reach up to 6.5%, although currently, the rate is at 4.25%. Some fees are included in the loan, such as an upfront guarantee fee, which is not more than 2% of the guaranteed part of the loan, an annual service fee which is not more than 0.55% of the outstanding balance, application fee, and a late payment fee. You do not have to provide any collateral while applying for this loan.
Any business will be evaluated for approval. It must provide its credit scores, existing banking relationship, and tax transcripts.
SBA Debt Relief
Under this program, small businesses have the opportunity to have their eligible loan paid within six months. The payment process includes fees, principals, and interests. The borrowers can have an existing 7(a) financing, Microloan, or 504. New borrowers are also eligible for the program, but they will receive their funding before 27th September 2020.
When applying for the loan, you should check with your lender whether you qualify for this program to avoid missing the payment. If you stand to be eligible for the program, you should get the funding automatically without any additional action. Under the CARES Act, the SBA should begin payment within thirty days after the first payment has been made.
Those who are eligible for the Debt Relief program can still apply for PPP since it is a separate program, although under the CARES Act.
Please note, there are relief options if you receive an SBA Disaster Loan. The Small Business Administration will automatically defer your repayment until 31st December 2020. In this case, your loan will continue accruing interest, but you will not need to make any repayments until the said date. However, if you can manage to repay the loan, you should do so.
Also, businesses and individuals with pre-authorized debits and recurring payments will not have them canceled by the SBA. Therefore, you should cancel them by yourself and resume payment after 31st December.
How Small Business Loan Advisor Will Help in Your Loan Application
As a Small Business Loan Advisor, we are committed to ensuring that you get through your loan application process smoothly. Every client goes through a procedure that will guarantee satisfaction in the loan that you apply and get. Here is a typical procedure of what we do while you contact us.
Step 1: Consultation
Before you go through your application process, Small Business Loan Advisor takes you through a consultation process. At this point, our professionals will go through your business needs and gather all the necessary information that will help in determining which loan is suitable for you. Since you will be contacting us concerning the Covid-19 funding option, you have the four loan options stated-above to discuss with our expert. Once they help you determine which loan is best suited for your business, the experts will advise you on which forms to fill out for your application process. After filling all the required documents, you will move to the review of the application.
Step 2: Review of Your Application
In this stage, our attorneys will carefully and thoroughly go through your application and documents. They will provide the necessary advice needed throughout the review and will point crucial errors that need to be fixed. Once they have helped you fix all the faults, they will help you submit your disaster loan applications.
Step 3: Submitting Your Application
The last procedure of our assistance is the reviewing of the applications and documents before you submit them. At this stage, our attorneys will help you answer any question that the lender might put forward. We will stand by your side until your loan is complete, and you get the approval.
Find a Small Business Loan Advisor Near Me
With the existence of the Coronavirus pandemic, it is evident that business needs some sort of funding to keep them running. The CARES Act has provided financial cushioning that a small business desperately needs. However, most small businesses might miss out on this funding due to the lack of crucial information required to access this financing.
These situations need the intervention of business loan advisors such as the Small Business Loan Advisor to ensure that the respective businesses access the fund. With our experienced team of attorneys, you will be confident of credible services that will help you get the Covid-19 funding. For more information about the available funding options, contact us at 888-919-1210 and get a free consultation.
