The CARES Act signed into law in late March offers some relief to the nation's estimated 30 million small businesses, especially through its Paycheck Protection Program (PPP), meant primarily to cover employee payroll costs. But many entrepreneurs, including many of the country's estimated 4.4 million Hispanic small-business owners, didn't even have a chance to start the application process before the initial $349 billion funding ran dry in just 13 days, while others didn't complete the application due to widespread confusion about the process.
"Most small-business owners don't have CFOs or full-time accountants,” says Nely Galán, 57, a well-known Latina entrepreneur who has been running webinars in English and Spanish to guide others through the application process for both the PPP and the Economic Injury Disaster Loan Program (EIDL). “The struggle of running our companies during a crisis and then filling out confusing forms we don't understand and with no help — it's too much.”
While both the PPP and the EIDL are types of loans — and businesses can apply for both — their intended purposes are different. Businesses apply to the PPP through a lending institution approved by the Small Business Administration (SBA) for loans of up to $10 million to maintain payroll and related benefits, interest on mortgages and other debts, leases, and utility payments. One of the main draws of the PPP is that 100 percent of the loan can be forgiven if the funds are used properly. For the EIDL, however, businesses apply directly through the SBA for up to $2 million in financial assistance to cover a wider range of daily business expenses, from payroll and accounts payable to fixed debts. While the EIDL is not forgivable, you may qualify for a $10,000 advance that may not have to be repaid.
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On April 27, the SBA once again began to accept PPP applications after Congress approved an additional $310 billion in funding, with some of that set aside specifically for smaller banks that tend to work with underserved communities. “The SBA has taken measures to ensure that small and medium-sized banks have an equal opportunity to access the PPP funds on behalf of their customers,” says Victoria Guerrero, district director of the SBA in South Florida. “Such efforts are helping ensure small businesses with local and community-based relationships get the capital they need to keep their employees on the payroll."
According to recent studies, over the past 10 years, the number of Latino business owners grew 34 percent, compared to 1 percent for all business owners in the United States. Within this group, businesses owned by Latinas, like Galán, are increasing, accounting for 44 percent of Latino-owned businesses.
"I ran these [PPP and EIDL] webinars in Spanish because I am Latina and I wanted all those Latino business owners who are holding up this country and hiring so many family and community members to feel part of this process,” Galán says. “I want them to know they deserve this money, and I wanted to show them how to get it."
The answers to the following 10 questions will help you understand key points about PPP and EIDL assistance:
1. Given the backlog of applications, should I still apply to the Paycheck Protection Program if I haven't already started the process? What about the Economic Injury Disaster Loan?
Yes. “The early bird gets the worm,” says Debra Salas, lead lender relations specialist at the SBA in South Florida. “I encourage all who need assistance to apply,” she adds.
Small-business owners interested in applying for the PPP loan should contact their banks immediately to find out if they are still accepting applications. If not, entrepreneurs can find a list of SBA-approved local assistance. The deadline to apply is June 30.
The online portal to apply for the EIDL is currently open, but is accepting applications only from agricultural businesses right now. Once the SBA begins accepting EIDL applications for other types of businesses, the deadline to apply will be Dec. 18.
2. I applied for the last round of funding. Do I need to reapply? What if the criteria for funding change?
You do not need to reapply for the PPP loan, but you may want to follow up directly with your bank — not the SBA — if you have yet to hear a decision. It's important to remember that your bank will inform you of your PPP approval, not the SBA. If your bank is being unresponsive and you decide to try working with a new SBA-approved bank, you don't need to worry about multiple applications. The SBA system will allow only one PPP loan per applicant, and you will not lose your place in line if your original application is already in the system. If you do decide to go through another bank, however, Salas recommends you inform your previous bank out of courtesy.
For the EIDL, matters are a bit trickier. “If your application starts with a 3, it's in the process of being reviewed and you do not need to reapply,” according to Guerrero. “If it starts with a 2, we are asking that you reapply” using the three-page streamlined application.
Reapplying will ensure your information is entered into the new SBA system, says Guerrero. The two applications will be matched, and applicants will not lose their original place in the queue. After your application has been submitted, the SBA disaster relief team will communicate directly with you via phone or email. Guerrero also advises applicants to check spam and junk mail folders just in case an email from the SBA gets trapped in there.
Expect to wait about four to five weeks for your EIDL application to be reviewed and processed, says Guerrero. For questions regarding your EIDL application, you can call 800-659-2955 from 8 a.m. to 8 p.m. any day of the week or email email@example.com (in English and Spanish).
You do not need to reapply for either program if criteria for funding change. “Whatever the criteria was when you submitted your application is what will be followed,” Salas says.
3. What should I do if I don't already have a relationship with a bank, or if my bank isn't taking any more applications?
According to Salas, the best way to search for new banks is to use the “find a lender tool.” Additionally, the SBA has recently approved several nontraditional financial institutions where you can apply online, like PayPal, Intuit, Square, Divvy, American Express, Kabbage and OnDeck.
4. I've decided to apply for one of these programs. What is my first step?
To apply for the PPP, visit this link for a list of SBA-approved banks in your area. While many banks are overwhelmed, Guerrero says you should try to make every effort to speak with someone at the bank who is trained on SBA loan programs. Once you apply, you'll receive an email asking you for documentation. “Definitely don't wait to get everything perfect. What's most important is that you get your application in so that you're in the pipeline,” she says. “After that, you are going to have an ongoing conversation with your loan officer about any additional documentation that may be needed."
For the EIDL — which is handled directly by the SBA — visit this link. The online portal is expected to reopen for non-agricultural businesses in the near future.
5. What kind of financial records do I need to apply for these programs? How much should I apply for?
For the PPP, a good starting point is to look at the SBA Form 2483 to see what you'll need to submit to your lender along with your payroll cost documentation. Chances are most of what you need is already included in your income tax returns, and not all of the documents will necessarily pertain to you. Some possible documents you'll need include: income tax statement, 1040 Schedule C, 941 quarterly tax returns (payroll reports), and 1099 MISC. Your bank might ask for additional documentation.
To figure out your “maximum loan amount,” use the following formula: Take your monthly average payroll cost in 2019 and multiply that amount by 2.5. Employee salaries are capped at $100,000, and the maximum loan amount is $10 million.
For the EIDL, the paperwork is broken into personal and business categories and the entire application is only three pages. Some of the documents you may need to submit for the personal portion include income tax returns and personal financial statements. For the business portion: balance sheets, schedule of liabilities, monthly sales figures and a signed IRS 4506-T.
6. Do I have to put up my business or my house as collateral for these loans?
No collateral is needed for the PPP, but it is necessary for the EIDL (in the form of business interest or real estate, for example) if you are asking for more than $25,000. Business owners can be approved for up to $2 million for a disaster loan.
"However, if you don't have collateral, I don't want you to be discouraged,” Guerrero says. “The SBA will work with you to determine what can be pledged."
7. Do I have to be a U.S. citizen to apply?
To apply for the PPP loan, you generally have to be a U.S. citizen or a legal permanent resident with a valid green card. “However, if there is a foreign-owned business who owns a business in the U.S. and employs U.S. citizens and residents, then that business owner can apply for the PPP,” Guerrero says.
For the EIDL loan you need to be a U.S. citizen or a legal permanent resident with a valid green card to apply.
8. Will my credit score affect my application for these loans?
"We want to meet the needs of as many small businesses as possible,” says Salas. “The SBA has not published exact credit scores for these programs, and your body of credit is more important than your score.” Having major issues on your credit report — for example, defaulting on a student or federal loan, delinquency on child support, or a federal tax lien against property — will hurt your creditworthiness for assistance. But the SBA is committed to helping. “If you have defaulted on a federal loan but it has been over seven years, for the PPP program, we can assist the banks in getting you a manual approval,” Salas says.
9. Are there any restrictions on how I spend the money? How do I pay back the loan — and do I have to repay it if my business closes as a result of the pandemic?
Yes, there are restrictions. However, the PPP loan can be forgiven if the funds are used appropriately: that is, if 75 percent or more of the loan proceeds are used to pay employees for the eight weeks following receipt of the funds. Up to 25 percent of the loan proceeds also can be forgivable if used to pay for any of the following expenses: mortgage, interest, lease or rent, and utilities.
"The key to loan forgiveness is the appropriate use of the funds as intended by the CARES Act legislation regardless of whether the business ultimately survives the pandemic,” Guerrero says. “If not forgiven, borrowers must begin repayment six months after receipt of loan proceeds and will have the subsequent 18 months at a rate of 1 percent interest to pay off the debt."
Guerrero advises opening a separate bank account for the PPP funds and not commingling the PPP money with regular business funds. This will help provide proof that the PPP funds were spent in the categories deemed forgivable. Guerrero says “formal guidance on what process will need to be followed for loan forgiveness” is expected “in the near future.”
For the EIDL loan, the interest rate is 3.75 percent for small businesses and 2.75 percent for private nonprofits, and the repayment term will be decided on a case-by-case basis, but it can be for up to 30 years. “There is an advance you can apply for that does not need to be repaid,” Guerrero says. “Small-business owners can apply for up to a $10,000 advance calculated at $1,000 per W2 employee."
One caveat: If you are getting both the PPP funds and the EIDL loan advance, the amount of the advance you receive will be deducted from the PPP funds that can be forgiven to avoid using the monies for the same payroll needs.
10. Where else can I go for help if I'm rejected from my bank for these loans?
First, ask your bank why your application was rejected. According to Guerrero, there are a few reasons a borrower's application will be rejected by the SBA. Among them:
- The business is ineligible due to its size or industry.
- The borrower has previously defaulted on federal debt such as a student loan, business loan or mortgage guaranteed by the federal government.
- There was an error on the application, such as transposed numbers on the employer identification number.
"It's important to have a conversation with the lender to understand why the loan application was declined,” Guerrero says. “Then, the borrower will know how to proceed."
For additional help, go to www.sba.gov/local-assistance to view a list of SBA resource partners who are available throughout the nation to assist small-business owners with their application or with any business-related questions you may have, not only now during a time of disaster, but throughout the year.
Galán is a big proponent of these resources, especially the Small Business Development Centers (SBDCs): “The SBDCs are like free counselors, funded by the federal and state government. They are in almost every city and they have people in Spanish and English. They are all small-business owners themselves who part-time counsel other business owners.”