There’s a significant amount of money — $370 billion — allocated to support small businesses in a new bill that Congress passed this week. These funds are in addition to the $377 billion that lawmakers had previously approved in the CARES Act. Figuring out how to access this money, however, can be somewhat confusing.
Vox is here to help.
The funds in the recent legislation are divided among two small-business programs that offer forgivable grants and loans. (These Small Business Administration programs also apply to nonprofits that meet the necessary size requirements.)
The first of these two programs is the Paycheck Protection Program (PPP), which enables organizations to obtain up to $10 million in loans that are 100 percent forgivable if they do not lay off any employees or if they rehire employees they’ve already laid off. Seventy-five percent of this money needs to be spent on payroll for the loan to be entirely forgiven.
The second is the Economic Injury Disaster Loan Program (EIDL), which includes a grant that caps out at $10,000. Businesses that receive this do not need to pay it back. The rest of the EIDL loan, which could go up to $2 million, is not forgivable but can be more flexible than PPP in the types of expenses it covers.
Experts tell Vox that it’s possible for businesses and nonprofits to apply to both — and that they should do so fast if they haven’t already. “We encourage you to apply as quickly as you can because there is a funding cap” reads a statement from the Treasury Department. Since both programs have a limited amount of funding, applying sooner is also important in case their allocated funding is fully used, like it was in the first round.
Currently, the EIDL application is accessible here, and can be submitted directly on the SBA website. The PPP application is also live and can be submitted directly with banks, credit unions, and fintech companies including Square and PayPal.
Both the SBA and banks should be able to begin taking new PPP and EIDL applications in the coming days, in the wake of Congress’s approval of these new funds. Businesses that have already applied do not need to apply again and are already in the queue.
This guide is intended to give a broad overview of both programs, but for specific questions, organizations can reach out directly to the Small Business Administration via a 24/7 helpline: 1-800-659-2955. Businesses are also encouraged to connect with advisers at small-business development centers, women’s business centers, and SCORE, who are available to provide free guidance. (Contact information for the closest regional advisers can be found on their websites.)
Let’s start with what’s included in the stimulus
The Paycheck Protection Program and the Economic Injury Disaster Loan Program are the two main options small businesses and nonprofits have to obtain financial support during the coronavirus outbreak. (It’s worth noting that organizations can receive both loans and that an EIDL loan can also be refinanced into a PPP loan.)
- The Paycheck Protection Program (PPP): The bulk of the small business stimulus funds in the new spending bill, roughly $320 billion, will plus-up the Paycheck Protection Program, a new program created last month under the CARES Act to guarantee businesses the loans they need to cover eight weeks of payroll, along with some utility and rent costs.
If businesses keep employees on payroll or rehire them by June 30 after they’ve been laid off, these loans could be fully forgiven. Businesses are able to request 2.5 times their average monthly payroll costs for this loan. At least 75 percent of the loan must be used to cover payroll costs in order for the entirety of it to be forgiven.
Organizations can apply for PPP by calling their banks and lenders directly. Many of these institutions have online forms that are set up specifically for this program, and online platforms like PayPal and Square can now approve loans, too. As a condition in the new bill, about one-fifth of the new funds are specifically set aside for smaller community-based lenders, including Community Development Financial Institutions (CDFIs), which is intended to improve access to these loans.
- Economic Injury Disaster Loan Program and Advance (EIDL): There’s $60 billion in the latest stimulus bill allocated for the EIDL, a program that has existed for some time.
This money will go toward two things: It sets up a grant program that would provide an emergency “advance” of as much as $10,000 that businesses won’t have to pay back, and it funds low-interest loans that organizations can use to cover operating expenses, though they will have to repay these funds. The loan amount that organizations can request will be based on the amount of “economic injury” that they have sustained because of the coronavirus.
Businesses and nonprofits can apply for the EIDL directly on the Small Business Administration website.
When do applications open, and when can I expect relief?
Both the EIDL application and the PPP application are now up and running, though there’s still a lot of uncertainty around how long it will take for SBA and banks to process these loans.
Banks have raised concerns about the rushed PPP rollout, and some have limited the loan applications they are receiving to existing customers. Many are warning that the new money that’s been approved by Congress will likely run out quickly, much like the first wave of funding did.
The $10,000 grants that are part of the EIDL program have been viewed as one of the fastest ways for businesses to obtain relief at this point, but this program has also seen overwhelming interest, which could mean delays in how quickly people receive a response about their application. Additionally the amount of the grant is now capped at $1,000 per employee, so any business with less than ten employees would likely not be eligible to receive the full amount.
In the original timeline offered by the agency, if a business is approved for these grants, it would be able to receive them within three days of approval, though businesses have since reported major delays in obtaining status updates.
Any business or nonprofit that applies for an EIDL loan can indicate that it is interested in this emergency advance, and organizations can still receive it even if they aren’t approved for the full loan.
“Businesses applying for EIDL loans are eligible for an emergency advance of up to $10,000 that does not need to be repaid,” Michael Chasalow, the founder of the USC Small Business Clinic, told Vox. “It seems that a business in need of immediate cash should pursue this option.”
Below is what we know so far about how to apply to both programs. We’ll keep updating this guide as more information is released.
First, determine eligibility
The first step for companies and nonprofits interested in these programs is to figure out whether they’re eligible for these specific loans, which are predominantly focused on helping organizations that have suffered economic uncertainty because of the coronavirus outbreak.
In addition to meeting the size standards that are set by the SBA, businesses and nonprofits need to show that they’ve been affected by the coronavirus.
Businesses and nonprofits eligible for the PPP program are required to have been operational on February 15, 2020, and to demonstrate that the economic fallout from the coronavirus has impacted them.
- Any business with 500 or fewer employees
- Any 501(c)3 nonprofit that has 500 or fewer employees, or otherwise meets the SBA’s size requirements
- Restaurants, hotels, or other businesses categorized under “Accommodation or Food Services” that have 500 or fewer employees at each independent location
- Tribal businesses and 501(c)9 veterans organizations
- Independently owned franchises
- Self-employed workers, independent contractors, gig workers, and sole proprietors
Businesses and nonprofits eligible for the EIDL program are required to have been operational on January 31, 2020, and to have experienced economic uncertainty because of the coronavirus crisis.
- Any business with 500 or fewer employees
- Any private nonprofit that has 500 or fewer employees — or otherwise meets the SBA’s size requirements
- Sole proprietorships and independent contractors
- Tribal businesses, cooperatives, and employee-owned businesses
Next, figure out which loan makes the most sense right now
Organizations will have to evaluate which loan program makes the most sense for their immediate needs, though multiple experts told Vox there’s no harm in applying to both of them.
In fact, this move is encouraged to make sure that businesses have more options — as long as they don’t use the two loans for the same purpose. (An EIDL loan could not be used to pay employees for the month of May if a PPP loan was already being used to do that, for example.)
The focus of the two programs, ultimately, is slightly different.
Under PPP, the loans are predominantly aimed at covering payroll costs (up to $100,000 per employee) but can be used to address other expenses as well, including utilities, rent, and interest on mortgage payments. Loans, of which 75 percent are used to cover payroll costs are 100 percent forgivable at the end of the eight-week period during which they are used, but if more than 25 percent of the money is used for other expenses, that portion of the funds will not be forgiven.
Under EIDL, the grants and loans can be used for a broader array of costs, including rent and mortgage payments, salaries, workers’ paid leave, and the business’s operational needs. Because small business owners don’t have to worry about as many rules around loan forgiveness, there’s slightly more flexibility regarding these funds.
The big difference between the two programs is that the PPP loans are entirely forgivable if companies meet a specific set of requirements, while EIDL loans (except for the $10,000 grant) are not. The cap for PPP loans is also higher, at $10 million per organization, while the EIDL loans cap out at $2 million.
There are two separate processes for applying for these loans
Applications for these loans are expected to go through two different channels.
- To apply for the EIDL loan and the $10,000 grant: Small-business owners and nonprofits can apply directly with the Small Business Administration at this website: https://covid19relief.sba.gov/#/. When small businesses submit their applications for the EIDL loan, they can indicate they are interested in the emergency grant at the same time.
- To apply for the PPP loan: Organizations can call their current bank or lender directly, and they can download the application at the SBA website.
All 1,800 banks that currently participate in the SBA’s 7(a) loan program are expected to participate in the PPP option, and the Treasury Department is continuing to approve new lenders in recent weeks including PayPal, Square, and Intuit. Smaller lenders, like Community Development Financial Institutions, are also receiving dedicated funds for these loans, as part of the new bill.
Participating institutions already include hundreds around the country such as TD Bank and Bank of the West, though some — like Bank of America — may require businesses to have an existing account with the institution to be considered for PPP. (Businesses can check directly with their banks to determine if this is the case.)
A more comprehensive list of banks that currently offer 7(a) loans can be found at the SBA website, and businesses can look for lenders in their area using the agency’s Lender Match tool. In order to move the process along quickly, SBA is not expected to be involved in the approval process, and banks will be able to move forward with candidates independently.
Businesses and nonprofits need to be prepared to provide information about their payroll costs
The requirements across the two programs differ slightly, though both have relaxed the need for a personal guarantee of the loan:
PPP: Businesses are able to obtain 2.5 times their average monthly payroll costs for this loan, up to $10 million per organization. Costs that can be included as payroll costs include worker salaries, paid leave, health care benefits, commissions, tips, and state payroll taxes.
Average monthly payroll costs can be calculated using monthly costs the business experienced from January through December 2019 or the last 12 months, according to the Treasury Department. If a business is seasonal, it could use the average monthly costs the business experienced between February 15 or March 1, 2019, through June 30, 2019. If the business did not open until this year, the costs would be calculated based on average monthly costs in January and February of 2020.
Businesses should begin preparing documents that demonstrate their monthly payroll and operational costs including payroll tax filings and rental contracts.
EIDL: There are no personal guarantees needed for loans less than $200,000, according to Forbes. Business owners should have documentation including their previous federal tax return and information about personal assets and debt.
Be aware of the terms for loan forgiveness and for repayment
Components of both the EIDL offering and the PPP program are entirely forgivable, and each offers its own unique terms for repayment, which businesses should keep in mind as they are weighing the two.
The PPP loans are 100 percent forgivable, depending on whether businesses lay off workers and how they use the money.
- The loan will be completely forgiven if businesses do not lay off workers at all or if they rehire workers by June 30, 2020.
- If a business lays off workers and does not rehire them, a portion of the loan will not be forgiven. If a business reduces the wages it pays out to a worker by more than 25 percent during the time it is using the loan, part of the loan will not be forgiven.
- If the loan is used for costs that are not approved by the bill, those portions will also not be forgiven and will have specific repayment terms. Seventy-five percent of the loan must be used to cover payroll costs for the loan to be fully forgiven.
- Repayment could be deferred for six months and will have an interest rate beginning at 1 percent. The maximum term of repayment is two years.
- The $10,000 EIDL grant that businesses and nonprofits can apply for is forgivable and can be used for a wide range of business needs.
- Aside from the $10,000 grant, the rest of the loan is not forgivable.
- The loan will have a 3.75 percent interest rate for small businesses and a 2.75 percent interest rate for nonprofits, and repayment can be deferred for six months. The maximum term of repayment is 30 years.
Correction, April 3: A previous version of this article included the wrong number for the SBA helpline.