As the coronavirus keeps the world under lockdown, the US federal government is taking unprecedented steps to prevent an economic collapse—including, thankfully, small-business loans.
On March 27, 2020, President Trump signed the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. In addition to expanded unemployment benefits and direct-to-taxpayer checks, the act contains provisions to help small businesses—in particular, loans to make sure that you can keep paying your employees. Although the loan programs established by the CARES Act ran out of money after a few weeks, on April 23, 2020, Congress approved legislation to add $480 billion to these programs.
The situation continues to evolve rapidly as Congress and the Trump administration propose further stimulus packages, and government agencies strain to address soaring demand for aid. But understanding what’s available for small business through the Act can help you secure relief. As the owner of a small architecture, engineering, manufacturing, design, or construction firm, here are four things you should know:
1. PPP Provides Loans to Keep Americans Working
One of the Act’s key components, the Paycheck Protection Program (PPP), is intended to keep Americans employed as the economy struggles. The April 23 funding infusion includes $320 billion for this program alone. The PPP offers loans of up to $10 million to cover two-and-a-half months of an organization’s payroll costs; payments to individual employees are capped at a $100,000 annual salary, not including benefits or taxes. The funds can also be used for basic necessities such as mortgages, rent, and utilities.
If businesses keep staff members employed, maintain salary levels, and spend at least 60% of the loan on payroll, the government will forgive the full amount. Employers may also rehire staff who have already been laid off due to COVID-19.
2. PPP Loans Have Specific Eligibility Requirements
Small businesses affected by COVID-19 between February 15, 2020, and June 30, 2020, can apply for PPP loans.
With the announcement of the program came some confusion around the definition of a “small business,” but the government has since provided clarification. According to FAQs published by the Small Business Administration (SBA) and the Department of the Treasury on April 8, 2020, US-based businesses meet the size requirement if they fall into one of three categories: having 500 or fewer employees, meeting the SBA’s industry-specific standards, or fitting the criteria set by the agency’s alternative standard rule.
Having fewer than 500 employees is clear enough, but the other two categories require more explanation. The SBA’s industry-specific standards were created to acknowledge that what counts as a small business varies greatly by industry (think local bakeries vs. petroleum refineries)—meaning federal small-business programs can’t base eligibility on a single set of numbers.
To this end, the SBA sets customized size caps for different types of companies, based either on annual receipts (accountant-speak for gross income plus cost of goods sold) or numbers of employees. Individual businesses with more than 500 employees may still qualify for PPP loans if their category permits it. For certain types of manufacturing, for instance, the SBA treats companies with 1,500 employees as small businesses.
The alternative standard rule provides another opportunity for small businesses with more than 500 employees. Created to increase the number of businesses eligible for SBA loan and contracting programs, entities must meet two requirements: a maximum net worth of no more than $15 million and an average net income (after federal taxes) of no more than $5 million for the previous two fiscal years.
Sole proprietors, independent contractors, and self-employed individuals are also eligible for PPP loans. Nonprofits and tribal businesses qualify as long as they have 500 or fewer employees or meet their industry’s employee-based size standards.
3. Loans Can Come From Traditional Banks, Credit Unions, and Fintech Companies
PPP loans are administered through the SBA, but the money is issued by banks and credit unions—in fact, the latest round of PPP funding includes $30 billion for credit unions and community banks. Prospective borrowers contact a participating lender to start the process or fill out the PPP application and submit it for review; the SBA’s website contains a database of approved lenders.
How should you select a lender? In a recent webinar about the CARES Act hosted by the Bay Area Council in San Francisco, panelists said many early applicants have had luck with smaller banks and credit unions, which may be able to provide faster, more personalized service than larger institutions. Other sources advise loan seekers to start by reaching out to their existing banks. In fact, some lenders (including Wells Fargo, Bank of America, and Chase) accept applications only from current customers.
If you’re having trouble securing funding through a traditional lender, there’s yet another avenue: online financial-services companies. While big banks remain the primary source of PPP loans, the government has expanded the funding scope to include the likes of PayPal, Intuit, and Square. These fintech companies have the resources to do their own risk assessments and the freedom to make lending decisions that more highly regulated banks cannot.
4. Other CARES Act Resources Are Also Available
When the CARES Act was signed into law, the Senate Committee on Small Businesses and Entrepreneurship released a guide (PDF) for owners trying to navigate the new legislation. In addition to PPP loans, the document discusses several types of assistance: emergency funding, debt relief, and business counseling.
Businesses can receive quick infusions of cash through the SBA’s Economic Injury Disaster Loan (EIDL) program—now with $10 billion in additional funding—which provides advances of up to $10,000 to small businesses and nonprofits. These advances do not need to be repaid. Companies can apply on the SBA website. The SBA has also pledged to automatically cover six months’ worth of payments for many of the loans it administers.
The CARES Act also provides funding to states for state-specific relief programs. It’s worthwhile to research what additional relief your state can provide.
Finally, consider how you might benefit from expert advice at this confusing and frightening time. The SBA website allows users to search for local business counselors; additional resources include the Minority Business Development Agency’s (MBDA) Business Centers, Women’s Business Centers, the SCORE business-mentorship program, and the Small Business Development Center (SBDC) network.
It’s impossible to predict how long the current economic downturn will last. But by taking advantage of these resources and keeping an eye on ongoing developments, you might put your small business in a better position to get back to work once the COVID-19 crisis recedes.