By Nancy Dahlberg
UPDATE: Since this was published, the SBA released guidelines March 31 and several aspects of the loans have changed. I updated the story and you can find the latest advisory from the SBA here. Caveat: Guidelines and applications are constantly being revised.
To battle COVID-19's unprecedented assault on public health and the economy, more federal help for small businesses and startups is on the way. The question is, will they get it in time?
The needs are real: This week, the Labor Department said that jobless claims from the period between March 14 to March 21 surged to 3.28 million, shattering the previous record of 695,000 set in 1982. That's well above the levels seen during the worst of the Great Recession, and economists have warned the number will likely continue to rise in the coming weeks. Although we don’t need the numbers to know that Florida’s small business economy is suffering, in the Sunshine State the gloomy story is the same. U.S. data showed more than 74,000 in Florida filed unemployment claims last week, almost 12 times the prior week's numbers. Many economists have said the U.S. is already in a recession: the question is how deep and how long it will go.
It’s no secret that the drastic measures to try to stop the COVID-19 pandemic spreads have already decimated the small business sector. Because small businesses have greater credit constraints and are more sensitive to weak consumer demand, they are often hit the hardest in economic downturns. Brookings looked back on what happened to small businesses during the last major economic downtown, 2007 to 2009’s Great Recession.
In the Great Recession, small businesses accounted for 45% of employment, but as the economy shed about 5 million jobs from 2008 to 2009, they accounted for 62% of the net job loss, Brookings found. Compared to the Great Recession, the early stages of the COVID-19 economic crisis suggest that job losses will fall even more disproportionately within the small business sector. Micro businesses (fewer than 10 employees) and young businesses (zero to five years old) were most vulnerable across all sectors, Brookings found.
FEDERAL GOVERNMENT ANNOUNCES NEW FORGIVABLE LOAN
The $2.2 trillion coronavirus stimulus package signed into law today (March 27, 2020) aims to keep workers employed. It establishes a $349 billion lending program for small businesses, called the Paycheck Protection Program (PPP) of the CARES Act. The loans are designed to be used to cover monthly expenses like payroll, employee benefits, rent and utilities to keep workers employed. The loans would not have to be repaid if businesses maintained their workforce. If small businesses have already laid off employees because of the coronavirus, the loan will still be forgiven if workers are rehired.
The loan size, up to $10 million, is determined by formulas based 250% of your average monthly payroll from Feb. 15 to June 30, 2019. You can refinance an SBA Economic Injury Disaster loan taken out during that time into the loan. The loans are available to companies with not more than 500 employees, as well as 501(c)(3) nonprofits, sole-proprietors and independent contractors. The program will begin April 3.
Loan balances that have not been forgiven are carried forward as an ongoing loan at a 0.5% interest rate for two years (UPDATED). Principal and interest will be deferred for 6 months (UPDATED) after disbursement of the loan.
An important note: Lenders approved to make PPP loans are the same ones that are approved for SBA 7(A) loans, and more will be added. They are able to make determinations on borrower eligibility and creditworthiness of small businesses without going through all of SBA’s normal channels. Check with your own lender to see if they can make the PPP loans, or find another – there are many that are, including nearly all the major banking institutions.
The PPP Program under the CARES Act waives both borrower and lender fees, scraps the “credit elsewhere test” for loans made under the program, and waives collateral and personal guarantee requirements.
The National Venture Capital Association believes some startups with a certain level of equity investors could be excluded from the loan program, and is seeking clarification of the rules.
Visit SBA.gov/Coronavirus for more information on the Paycheck Protection Program (UPDATED).
NO PRINCIPAL AND INTEREST ON ALL SBA LOANS FOR 6 MONTHS
In addition to the federal PPP loan program, there are additional monies in the $2.2 trillion CARES Act aimed at helping small businesses, including those that hold other types of SBA loans. These monies include:
- $17 billion for debt relief for current and new Small Business Administration (SBA) borrowers. What this means: SBA will pay the principal, interest and fees for the next 6-months on all SBA-backed loans, including 7(a) loans, 504 loans (for owner-occupied real estate or equipment) and microloans. This will be available to existing SBA loan holders as well as new borrowers who take out loans within six months of March 27, 2020, when the bill was signed into law.
- $10 billion for immediate disaster grants – up to $10,000 per applicant.
- Employee Retention Credit for struggling small businesses to pay and retain their workers. The fully refundable credit would cover up to 50% of wages and benefits up to $10,000 to keep employees paid rather than laying them off.
It is worth repeating that the SBA is making available low-interest disaster loans up to $2 million at a 3.75% rate for up to 30 years from the Small Business Administration (SBA) here. SBA's partners, including Florida SBDC at FIU, are helping to process the loans, which are called Economic Injury Disaster loans.
In a webinar earlier this week, Althea Harris of the SBA’s Southern Florida district urged small businesses to apply, even though the agency was deluged and its website was temporarily offline for maintenance at the time of the webinar because it couldn’t handle the volume. Here are a few things she and others at the SBA would like you to know:
- Independent contractors and sole-proprietors, private businesses, and non-profits are eligible for assistance through SBA funds.
- Your first loan payment can be delayed up to one year from the disbursement of funds.
- If you have an existing disaster related loan, the Small Business Administration will work with you.
- For those concerned about taking on debt, you can apply, and if approved you can decline the loan without penalty.
If you need a quick infusion of cash to help you until a loan is approved, small businesses located in Florida can apply for the state’s interest-free short-term loans up to $50,000 through the Florida Small Business Emergency Bridge Loan Program here. Agencies including Florida SBDC at FIU are helping to process these loans. Regional director Brian van Hook said it is important that small businesses make sure they are including all information requested to expedite the process. His tip: Print out the application and gather all the information needed before starting the online application process.
There is help in the private sector as well. For example, Facebook announced it will be providing $100 million in cash grants and ad credits for up to 30,000 eligible small businesses in 30 countries. Information on this program can be found here: https://www.facebook.com/business/grants. Google announced in a blog post today that it will be offering $340 million in Google Ads credits to small businesses that have an account with them. It is part of its $800 million program to help support small- and medium-sized businesses.