Resources for Small Business Owners
On March 27, I voted for the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which will strengthen both our public health response and economic security in light of the COVID-19 pandemic. To that end, this bill provides substantial resources to help small businesses get through the current economic challenges. In December, I voted for a stimulus package that provides over $280 billion for the PPP through March 31, 2021.
What entities are eligible for small business assistance?
Generally, businesses and nonprofits with fewer than 500 employees are eligible for assistance from the Small Business Administration (SBA). However, for some industries, SBA defines small businesses by annual revenue or by a different employee standard. See here for SBA’s full list of eligibility by industry. Click here for rules in determining the number of employees in your business. The SBA continues to update their information on coronavirus Relief Options for small businesses, you can find updates here.
Additionally, self-employed individuals, sole proprietors, and independent contractors may also be eligible for assistance.
What is the Paycheck Protection Program?
The CARES Act provided $349 billion for SBA to administer the Paycheck Protection Program (PPP). Congress subsequently provided an additional $320 billion for the program in April. The PPP provides loans of up to $10 million to small businesses that have been harmed by the coronavirus pandemic. PPP loans may be used to cover payroll costs, healthcare benefits, mortgage interest payments, rent, utilities, and other interest payments.
The CARES Act provided that the cost of eight weeks of payroll and operating expenses will be fully forgiven from the loan. After the CARES Act passed, the SBA added an additional requirement that 75% of the loan go toward payroll. This restriction was too rigid for most small businesses, which is why I joined a bipartisan effort to change this rule. As of June 5, business now must spent at least 60% of their loan on payroll expenses. The remaining 40% of the loan can be used for other qualified operating expenses.
The interest rate on PPP loans is 1% and the loan will mature after 5 years.
The Treasury Department has included a helpful Q&A that you can find here.
Where can I apply for a PPP forgiveness?
You can apply for a PPP loan through your local SBA-approved lender. For a complete list of SBA-approved lenders in Virginia, please see here and here. You can also use this interactive map to see PPP lenders near you. You can find a sample application form here to see what information you’ll need to provide to your lender.
How do I apply for PPP forgiveness?
The SBA released its PPP forgiveness application form on May 15. The form must be submitted by both you and your lender, so you should reach out to your lender for help in completing it. The form asks businesses to provide information on how the PPP proceeds were spent and how many employees were rehired. Please note that as of June 10, SBA is working to update this form to reflect PPP changes under the PPP Flexibility Act.
Generally, to get full loan forgiveness you will have to spend at least 60% of the PPP loan on payroll costs, and use the loan to pay workers at least 75% of their pre-pandemic wages. However, the employer will not be required to use PPP to pay an employee if:
- The borrower made a good-faith, written offer to rehire the employee during the covered period of the loan, and the employee rejected the offer; or
- During the covered period of the loan, the employee:
- was fired for cause,
- voluntarily resigned, or
- voluntarily requested and received a reduction of their hours.
You can learn more about the application by reading the form or contacting your lender.
What changes were made to the PPP by the PPP Flexibility Act?
I am a cosponsor of H.R. 7010, the PPP Flexibility Act, which became law on June 5, 2020. This bill made both forward-looking and retroactive changes to the Paycheck Protection Program. It raises the percentage of the PPP loan that businesses may spend on non-payroll costs from 25% to 40%, allows businesses to spend their proceeds within 24 weeks instead of 8 weeks, and gives business owners at least 5 years to pay back their loan. It also ensures that the PPP will not be taxable in any way.
This bill also gives businesses more flexibility if they are unable to rehire an employee. SBA will not be allowed to penalize business owners if they make a documented, good-faith rehire offer to a former employee and that individual turns down the job offer. Businesses will also not be penalized for failing to rehire all employees if they can document that they are unable to operate at pre-pandemic levels because of compliance with guidance public health authorities.
My business needs immediate cash assistance. Are there any options available?
Virginia small businesses are also eligible for Economic Injury Disaster Loans (EIDL). The EIDL program provides loans of up to $2 million to help businesses cover temporary losses of revenue. The interest rate on these loans is 3.75% for small businesses and 2.75% for nonprofits.
In addition, the CARES Act allowed small businesses and nonprofits to receive an immediate grant of up to $10,000 within three days of applying for EIDL assistance. SBA has announced this it will However, many local businesses have reported waiting much longer than three days to receive their grant. This is troubling and I have demanded SBA fix this immediately. This grant will not need to be repaid.
To learn more about the EIDL program, see here. Please note that as of May 4, SBA is currently only processing new EIDL applications from agriculture and aquaculture businesses. Non-farm businesses that applied before that date will still have their loan applications processed.
The Express Bridge Loan Pilot Program is another resource that allows small businesses that currently have a business relationship with an SBA Express Lender to access up to $25,000 with less paperwork. These loans can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing and can be a term loan or used to bridge the gap while applying for a direct SBA Economic Injury Disaster loan. If a small business has an urgent need for cash while waiting for decision and disbursement on Economic Injury Disaster Loan, they may qualify for an SBA Express Disaster Bridge Loan. You can find an Express Bridge Loan lender by connecting to your local SBA District Office
What are the steps in the life of an SBA Loan?
The SBA has the following framework for the SBA loan process:
1. Small Business Owner prepares a business plan
2. Small Business Owner meets with a lender
3. Small Business Owner completes loan application
4. Lender reviews loan application and performs credit analysis
5. Lender makes a decision on whether to approve the loan
6. If an SBA loan guaranty is desired (and Lender is not a delegated lender), Lender submits application to the SBA. (Delegated lenders may approve loans without SBA reviewing the loan application.)
7. SBA determines eligibility for an SBA guaranty, pulls credit report and analyzes the loan application to determine, among other things, the ability of the small business to repay the loan.
8. SBA indicates guaranty decision to the Lender
9. An SBA loan authorization is prepared which is an agreement between the SBA and the Lender as to the terms and conditions under which SBA will guaranty the loan.
10. Lender completes loan underwriting such as obtaining and reviewing appraisals, title work, environmental reports, etc.
11. Loan documents are prepared such as the note, collateral documents, personal guarantees, etc.
12. Upon satisfaction of all terms and conditions of the loan authorization, the loan is closed.
13. Lender completes steps to perfect security interest in collateral.
14. Loan funding occurs with disbursements of loan proceeds as approved in the loan authorization.
15. Lender services the loan throughout the term of the loan consistent with standard loan policies and practices including collection of payments, monitoring of financial performance, etc.
16. When loan is paid in full, note is marked paid and all liens of collateral are released.
17. Small business owner may obtain free counseling from SBA Resource Partners at the beginning of and at any time throughout the lending process
I applied for a PPP loan/EIDL grant and haven’t heard anything from SBA. What’s going on?
Unfortunately, many local businesses have reported long wait times for receiving their loans. They have also reported difficulties getting in touch with SBA representatives to confirm the status of their application. This is unacceptable. As a former small business owner, I know how urgently businesses need this funding. That’s why I sent a letter on April 13 demanding that SBA provide a clear timeline for when businesses will receive their funding and provide more information to make the process easier for businesses.
I sent an additional letter on June 8 demanding that SBA provide more information on its implementation of the EIDL grant and loan program. Too many small businesses are still waiting on this crucial resource.
You can also call SBA at 800-659-2955.
I can’t find a bank that is willing to process my PPP loan application. What should I do?
Many local businesses have reported challenges finding a bank that is willing to accept their PPP loan application. Please know that the CARES Act does not require that you have a previous lending relationship with a bank or credit union to apply for a loan, and some banks and credit unions have accepted applications for loans from businesses that were not previous customers.
Congress and SBA must do more to ensure all small businesses are able to participate in this program, not just those with existing banking relationships. That’s why I signed a letter to SBA urging them to stop the nation’s largest banks from excluding small business trying to apply for a PPP loan. I will continue to advocate for improved access for Virginia small businesses.
Will the PPP/EIDL programs run out of money before I get my payment?
SBA is still processing PPP applications but is only accepting new EIDL applications from farm and aquaculture businesses. There had been a pause in new PPP processing in April after the initial round of funding ran out; however, Congress provided an additional $320 billion and SBA began processing new loan applications. As of June 9, over $140 billion remain for businesses that have not yet applied.
When will I have to repay my loans?
Congress has directed SBA to defer payments on all loans for at least six months and up to a year. This deferment applies both to existing SBA loans as well as new ones issued under the PPP or EIDL programs.
Can I use multiple sources of SBA assistance at the same time?
Yes, but you cannot use multiple sources of assistance for the same purpose. For example, if you use a PPP loan to cover April salaries for a certain group of employees, you could not use an EIDL loan to pay for those same employees’ April salaries.
My businesses is part of a larger affiliation that collectively employs more than 500 employees. Does it count as “small”?
The CARES Act waived affiliation rules for receiving PPP loans for food and accommodations businesses and franchises. For businesses in other industries, SBA will evaluate eligibility on a case-by-case basis. SBA is working to quickly finalize rules and guidance for implementing CARES Act.
Will I have to repay my PPP loan if I can’t rehire enough employees to meet the 75% requirement?
No. SBA plans to issue regulations stating that if a PPP borrower made a good-faith written offer of rehire, and the employee rejected the offer, then that employee’s wages will be excluded from the loan forgiveness calculation.
Can seasonal businesses get a larger loan if their peak season is later in the year?
Yes. Previously, businesses could only base the size of their PPP loan off revenues from late winter and spring. I heard from many local seasonal small businesses that this requirement meant that the loan would not be enough to recover losses from their peak season. In response, on April 23 I called for reforms to the PPP to give seasonal businesses more flexibility in choosing their loan base period.
On April 28, the Department of Treasury issued a new rule for the PPP to assist seasonal businesses. Per this new rule, seasonal businesses can choose any twelve-week period between May 1 and September 15, 2019, to determine their PPP loan size. This change ensures seasonal businesses that see their revenues peak in the summer can receive additional assistance during this crisis.
Is there tax relief available for small businesses?
Yes, there are two major options available to you:
- The CARES Act allowed small businesses to defer payment of their employer payroll taxes. Under the new law, businesses can defer payment on payroll tax payments due starting on March 27 and continuing through the end of 2020. Businesses can defer half of their payroll tax payment until 2021, and can defer payment on the other half until 2022.
You can claim this deferral and apply for a PPP loan. However, if your PPP loan is forgiven, you will not be able to defer payment on payroll taxes due after the date of the loan forgiveness. For more information on this option, the IRS has an FAQ here.
- The CARES Act also created a new Employee Retention Tax Credit for businesses that can demonstrate economic losses due to the coronavirus pandemic if they do not take out a loan under the Paycheck Protection Program. However, you cannot claim this credit if you receive a PPP loan.
For businesses with 100 or fewer employees, employers may claim a credit against payroll tax liability for wages paid to employees, up to $10,000 per employee. For businesses with more than 100 employees, the credit applies only to wages paid to employees while the business is shut down.
This credit can be applied to wages paid by eligible employers from March 13, 2020 through December 31, 2020. For more information on this option, you can view the IRS’ FAQ page here.
Because businesses cannot take the Employee Retention Tax Credit and have a forgivable PPP loan, it will be important to evaluate your options to determine what is best for your business.
What programs are in place to support farmers and aquaculture businesses?
The PPP forgivable loan program and the EIDL is available to farmers, provided they meet SBA size standards. The US Department of Agriculture (USDA) has a resources webpage with information for farmers, including an FAQ on the PPP.
Additionally, the USDA has created a $16 billion Coronavirus Food Assistance Program (CFAP), which will reimburse farmers for revenue losses related to eligible commodities. For more information on CFAP, please see the USDA’s webpage here.
Finally, the CARES Act also provided $300 million in assistance to aquaculture and other fisheries businesses that have experienced revenue losses related to coronavirus. This assistance may include direct relief payments. The Virginia Marine Resources Commission (VMRC) will be implementing this program in the Commonwealth. You can find more information here.
Are there counseling services to help my small businesses navigate these new programs and the current economic circumstances?
Yes. The CARES Act provided substantial resources to local partners to help small businesses navigate these challenging times. Local partners in Coastal Virginia include the Virginia SBDC and the Women’s Business Center at Old Dominion University.
Where can I find more information about support for small businesses during this period?
The SBA website has a coronavirus small business guidance and loan resources website with more detailed information about available SBA programs, including more information about the PPP and an FAQ about the PPP. Additionally, the IRS published an informational page on the Employee Retention Tax Credit, which can be found here.
The Treasury Department also has an FAQ with useful information about program details, and a one-stop for assistance to small businesses, nonprofits, veterans organizations, and tribal businesses—as well as to certain self-employed folks and independent contractors:
The CARES Act provided $275 million for SBA’s Resource Partners to provide vital guidance and expertise to small business owners and entrepreneurs impacted by COVID-19. Small Business Development Centers, Women’s Business Centers, and SCORE counselors are available to help guide small businesses with their specific questions about their eligibility and the application process. To connect to a small business with a local resource partner for COVID-19 advice please click here.
If you have additional questions or concerns that are not addressed above, please do not hesitate to reach out to my office. During this difficult time, my team and I stand ready to serve Coastal Virginia.