Small businesses look to government programs for support as COVID-19 pandemic impacts main street
STEAMBOAT SPRINGS —As you drive down Lincoln Avenue in Steamboat Springs, the impacts of COVID-19 can be seen just about everywhere you look.
The traffic on normally packed streets is noticeably lighter, there are parking spots to be found in front of nearly every store and customers are being turned away by closed signs on doors. Small business owners understand that stopping the spread of COVID-19 means an end to business as usual, but they are worried if their establishments will be around when things return to normal.
“If you look back at 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.”
One of the initiatives is the Paycheck Protection Program, known as PPP. 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.
PJ Wharton, president and CEO of Yampa Valley Bank, said local banks are here to help businesses during this period of crisis and he thinks PPP will provide some help for local businesses in the wake of the pandemic.
“We want to see our local businesses reopen their doors and that’s why we’re so passionate, that’s why we’re putting in a long, long, long hours,” Wharton said. “We feel responsible, because these are our customers. We’re the local community banks, and these are our community neighbors.”
Sullivan, who addressed small business owners in Steamboat Springs via Zoom earlier this week, and Wharton shared their knowledge to answer several questions surrounding PPP and EIDL.
What is the Paycheck Protection Program?
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.
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.
“The higher purpose of this program is to make sure that employees continue to have a paycheck,” Sullivan said. “So there are incentives in this program to bring employees back.”
Where can businesses go to apply for a PPP loan?
Wharton said his staff has been very busy since PPP was rolled out across the country on April 3.
“When Yampa Valley Bank opened in 2000, it took us a year to get to $25 million in loans,” Wharton said. “In the past five days, including Saturday, we’ve booked $27 million in loans, and we’ve booked approximately 300 loans.”
He said 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.
“They can come to any community bank, and they apply directly to the bank,” Wharton said. “We have to calculate their average monthly payroll for 2019, and we have to confirm the actual numbers. Then we multiply that by 2.5 and that’s the loan amount.”
Where does the money come from for PPP?
Wharton explained the money for the loan comes from the bank and then is ultimately backed by the federal government through the Small Business Association.
“So what happens is the day you close the loan, the bank funds the loan, not the SBA, and the customer gets their money,” Wharton said. “The business then collects payroll data for the next eight weeks because the intent of this program is to put people back to work, so we’re hoping our businesses will rehire their employees or keep them at work. Then 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.”
If there is excess money after paying wages can I still use the loan, unforgiven, for other expenses?
Sullivan said while the money in the PPP loans are slated to keep employees working and being paid, that doesn’t mean that the business owner can’t use some of that money as a short-term loan.
“I mean you’re getting a loan at 1% interest for two years,” Sullivan said. “It’s a great deal. Yes, you could spend it on things that are not going to be forgiven. If it keeps you afloat for the pandemic, good for you, good for the bank and good for Congress with coming up with this idea.”
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.
“It’s important to understand that this is not a new program,” Sullivan said of EIDL, which has been around for 60 years. “It’s new in the sense that it’s dealing with a pandemic that is a disaster like we never anticipated, but as far as the program within the Small Business Administration, it is intended to help small businesses rebuild after a tornado or hurricane, a flood or a fire.”
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?
According to Wharton, PPP loans are given out on a first-come, first-served basis, and because so many businesses are in need, the demand for PPP loans in the past week has been high, but still, he encourages business owners in Steamboat Springs and Routt County to reach out to their local bankers.
“The ‘Boat has not missed the boat,” Wharton said. “Thus far about $120 billion of the $349 billion has been allocated.”
The deadline to apply for a PPP loan is June 30. Business owners have until Dec. 16 to apply for EIDLs.
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