How to Access Low-Interest Federal SBA Loans Announced by Trump

COVID-19 has caused many small businesses to face a sudden, unprecedented downturn in revenue. Whether your business has been forced to close due to shelter-in-place orders, or you’re seeing a slowdown in sales because of the overall cutbacks in foot traffic and consumer spending during the crisis, this is likely a challenging moment for your company.

Fortunately, the federal government has acted quickly to implement new SBA loans for small business owners, with the goal of getting more cash into the bank accounts of small businesses as soon as possible.

Why Do Businesses Need Government Small Business Loans?

In times of widespread economic crisis like the moment we are living through today, the government often has to step in and serve as “lender of last resort” to support the economy and prevent wider economic damage.

Many small businesses are hungry for cash right now. Even in good economic times, many small businesses are low on cash and cannot afford to endure a prolonged downturn in sales.

Although experts typically recommend that small businesses have three to six months’ worth of operating expenses in cash reserves, this level of cash reserves is not feasible for many businesses. Business owners often need to invest their cash back into the business or use their cash to make payroll, cover fixed monthly overhead costs or handle unexpected expenses. If you’re in an industry with high fixed costs and low profit margins, it can be particularly hard to build up significant cash reserves.

According to a study from JPMorgan Chase, half of all small businesses have only 27 days’ worth of cash, and 25 percent of small businesses have fewer than 13 days’ worth of cash in reserve. With so little cash on hand, it’s important for small businesses in a time of crisis to get access to emergency SBA loans.

The recent federal economic stimulus package contains two main types of SBA loans that are designed to get emergency cash to small businesses as quickly as possible.

Economic Injury Disaster Loan (EIDL) and $10,000 Advance

One of the most common types of SBA loans during “normal” times is the Economic Injury Disaster Loan, which is offered to small businesses that have had their revenues harmed by a disaster in their local area, such as a flood, fire, earthquake or hurricane.

But currently, the entire country is being treated as a “disaster” area, and businesses all over the country, in all U.S. states and territories, are now eligible for these low-interest SBA disaster loans.

Here are more details on the new Economic Injury Disaster Loans available now for the COVID-19 crisis:

• Loan amounts of up to $2 million, with an interest rate of 3.75 percent for small businesses and 2.75 percent for nonprofits.
• Loan proceeds can be used for accounts payable, paying fixed debts, making payroll or other bills that can’t be paid because of the disaster.
• Loan terms of up to 30 years, determined on a case-by-case basis. This can help borrowers get affordable loan payments.
• Questions? Contact the SBA’s disaster assistance customer service center by phone at 1-800-659-2955 (TTY: 1-800-877-8339) or email disastercustomerservice@sba.gov.

The recent federal economic stimulus package is also offering special assistance: An Economic Injury Disaster Advance Loan of up to $10,000 that does not have to be repaid.

That’s right: If you qualify, you can get up to $10,000 of free money to help your small business, as well as additional loan funds at a low interest rate. This special loan advance is intended to provide fast cash (funds available within three days of a successful application) to provide relief to businesses that have suffered a temporary loss of revenue.

You can apply for your EIDL Advance money (and additional loan funds) on the SBA website.

SBA Loans: Paycheck Protection Program

The Paycheck Protection Program is a $350 billion loan program that is available to small businesses with less than 500 employees, including sole proprietors or self-employed individuals. If you are the owner of a single-member LLC, you can apply for the Paycheck Protection Program even if you don’t have any employees.

Unlike most SBA loans, the Paycheck Protection Program is a forgivable loan program. The goal of this program is to encourage small businesses to keep workers employed and on their payrolls, instead of laying people off and adding to the unemployment stats.

The money you borrow from the Paycheck Protection Program will be forgiven if you use the funds to make payroll for eight weeks from the date of the loan origination. You can also use the loan proceeds for a few other business expenses (for example, rent, utilities or mortgage interest), but at least 75 percent of the forgiven loan amount must be used for payroll.

The application form is only two pages long, making it easy to apply. Take advantage of this assistance to help cover your payroll and other costs of doing business!

Key details of the Paycheck Protection Program include:

• Loan amounts of 2.5 times your business’s average monthly payroll costs, up to $10 million.
• The loan funds will be fully forgiven if used for payroll costs (at least 75 percent of the forgiven loan amount must be used for payroll).
• To qualify for loan forgiveness, your business must maintain employee headcount or rehire employees, and maintain salary levels.
• If your business reduces your full-time employee headcount or cuts salaries and wages, forgiveness is reduced.
• You can also use the loan proceeds for business operating costs like mortgage interest, rent and utilities.
• No loan payments are required for six months.
• The loan maturity is two years; interest rate is 1 percent.
• No collateral required.
• No personal guarantees required.
• No fees will be charged to the borrowers (by the lenders or by the government).
• The Paycheck Protection Program is first come, first served.

To apply for the Paycheck Protection Program, talk to your current bank or credit union where you do your business banking. If your current financial institution is an SBA approved lender, you will likely get the fastest results from working with your current bank/credit union where you already have a banking relationship.

The Paycheck Protection Program went live on Friday, April 3, 2020, and Bank of America was one of the first major banks to offer applications via its website.

What Should You Do Right Now to Get Cash from SBA Loans?

If your business has taken a hit due to recent events, here is what you should do right now:

1. Go to the SBA website to apply for the Economic Injury Disaster Loan (EIDL) Advance, to get up to $10,000 of fast cash that does not have to be repaid.
2. If needed, you can use this same SBA website application to apply for additional loan funds from the EIDL program (up to $2 million) at a low interest rate with favorable terms and an affordable payment.
3. Check with your current bank or credit union about applying for the Paycheck Protection Program to cover your payroll; you can potentially have that loan amount forgiven, too.

Business owners are allowed and encouraged to apply for both of these programs: the Economic Injury Disaster Loan (EIDL) and the Paycheck Protection Program. Just make sure to read the application information carefully, and be aware of the legal obligations of the good faith certifications that you are expected to make in order to qualify for the loans.

This is an unprecedented time, with lots of uncertainty for businesses of all sizes. But the federal government is also making unprecedented efforts to pump money into the economy and put quick cash in the pockets of small businesses and their employees.

Don’t miss your chance to get “free money” and low-interest loans to help your business. If your business can get through this tough downturn, you can use these grants and low-cost loans to build a stronger foundation for the future.

Learn more about the new SBA Loans here:

• Economic Injury Disaster Loan (EIDL)
• Paycheck Protection Program