SCORE TC Announces SBA Loan Availability for Small Businesses

Due to the disruptions to regular business activity caused by COVID-19, SCORE Traverse City is here to assist any business that needs information regarding an SBA Disaster Loan. Eligible businesses may qualify for a loan of up to $2 million.

Eligibility requirements include small businesses, small agricultural cooperatives, small aquaculture businesses and most private non-profit organizations. Important considerations for loan approval include credit history as well as repayment ability. Additionally, the applicant business must be physically located in a declared county and suffered working capital losses due to the declared disaster, COVID-19.

If you would like to talk to a SCORE Mentor regarding this loan program, click here to schedule a mentoring session or call (888) 796-4913.

View the requirements and download the application HERE.

 


 

SCORE TC's ASK THE EXPERT ...

"What Small Businesses Need to Know About the CARES Act"

Geoff Streit

Vice-President Commercial Lending
 

To be a Northern Michigan Small Business in April of 2020 is the epitome of embracing challenge. Many of the places we once frequented have shut their doors to comply with the Governor’s Executive Order and to help “flatten the curve.” Many of our friends and our family members have been laid off or put on leave as “non-essential” businesses have been forced to shut-down. Calling a business “non-essential” is contrary to the notion of business itself. Any business that is meeting market demand is by nature essential to some participant in the market. In these challenging times our small business owners are bearing a large brunt of the “shelter in place” practices. Historically the small business owner is the highest tax payer and the least likely to receive relief when economic events go awry. Congress and the President have tried to alleviate this through recent passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act has a number of provisions targeted to the small business owner. These include the Paycheck Protection Program (PPP), the Economic Injury Disaster Loan (EIDL), and Payment Relief.

Paycheck Protection Program (PPP):

        This is a new loan program administered by the Small Business Administration (SBA) and is applied for at many banks and credit unions.  Although the legislation passed on March 27, and outlined the loan program; during the week of March 30 a number of changes occurred.  Some of the final guidance wasn’t issued by the SBA and the Department of Treasury until the day the loan program became live. 

Who can apply?

        Any small business with less than 500 employees (including sole proprietorships, independent contractors and self-employed persons), private non-profit organization or 501(c)(19) veterans organizations affected by COVID-19.  Some businesses with more than 500 employees may apply based upon certain SBA size standards.  Hospitality and food industry businesses with more than one location could also be eligible if their individual locations employ less than 500 workers.  The application window for businesses with employees opened on April 3, this is supposed to open to independent contractors and self-employed persona on April 10.

How much can a business borrow?

        The maximum loan amount is the lesser of $10,000,000 or an amount based upon monthly payroll costs multiplied by 2.5.  Monthly payroll is determined as compensation paid to employees (whose principal place of residence in within the United States); this includes vacation pay, group health care coverage, employer retirement contributions and payment of state and local taxes assessed on compensation of employees; less amounts paid to an employee in excess of $100,000/year.  This monthly payroll cost is multiplied by 2.5x to determine the maximum loan amount.

What can funds be used for?

        PPP loan proceeds can be used for:  payroll costs, costs related to group health care benefits, mortgage interest payments (not payments towards principal), rent, utilities, and interest on debt that was incurred prior to February 15, 2020, and refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020.  At least 75% of the PPP must be used for payroll costs.  This was a change from the original legislation.

Terms and conditions:

        Although the CARES Act passed with terms up to 10 years and a maximum interest rate of 4%.  The SBA Administrator determined that the loans will have a term of 2 years and an interest rate of 1%.  Loan payments are deferred (interest still accrues) for the first 6 months.  Loans require no collateral and no personal guaranties.

Loan forgiveness:

        To be eligible for forgiveness loan proceeds must be used within 8 weeks of loan origination.  75% of those proceeds must be used for payroll.  The other 25% must be used for the previously mentioned eligible uses.  The business must document the use of proceeds to obtain loan forgiveness.  This would be done with payroll tax filings, unemployment insurance filings, cancelled checks, paid receipts, and transcripts of accounts; all verifying payments of qualified purposes.

Economic Injury Disaster Loan (EIDL) and grant

        Within the CARES Act the SBA increased its disaster loan program allocation related to COVID-19 from $1 billion to $10 billion.  These loans are applied directly through the SBA.  This loan is intended to provide economic relief to businesses that are currently experiencing a temporary loss of revenue.  Maximum loan amounts are $2 million but are ultimately determined by the SBA.  Terms go up to 30 years are rates of 3.75% if the business is for-profit and 2.75% if a non-profit.  Collateral and personal guarantees are not required for loans under $25,000.  All applicants are eligible to apply for an EIDL advance up to $10,000 when they apply for the EIDL.  The program is for small businesses with less than 500 employees.  Prior to the CARES Act passage the SBA Disaster Loan process was quite burdensome on an applicant; the CARES Act helped streamline this; many businesses will be able to complete and application in under 30 minutes.  Although the SBA claims funds for the $10,000 advance will be made available within days of a successful application, this author has yet to see this occur.

SBA Payment Relief:

        Upon passage of the CARES Act the SBA is required to pay the principal, interest, and any associated fees owed on all SBA 7(a) and 504 loans in regular servicing starting with the next payment due for existing and new borrowers.  If a loan is not on deferment the 6 payments beginning on March 27, 2020 are made.  If a loan is on deferment, the six-month payment relief begins with the next payment due on the loan after the deferment period ends.  New loans made by September 27, 2020 will have their first six payments made by the SBA beginning with the first payment due on the loan.

        The COVID-19 virus has caused economic disruption of scale and magnitude previously unseen all within a span of two weeks.  Business owners, individuals, and governments were clearly ill-prepared for this.  As a response the Federal Government passed the largest non-budgetary spending bill in the history of this nation.  The intent of this legislation is to provide a life line to the small businesses that make this a country worth living in. Time will tell if that alone will be adequate.  In spite of all that has occurred, the United States small business owners remains the backbone of this country, and the source of its vitality. The small business owner will adapt, evolve, and persevere.  Through resilience we will see better days.