How to access small business loans for COVID-19 financial relief

Editor's note: as of May 4, only agricultural businesses are eligible for Economic Injury Disaster Loans.  

The CARES Act recently passed by Congress funded financial assistance for small businesses experiencing economic hardships caused by the COVID-19 pandemic. Two Small Business Administration (SBA) loan programs established or expanded by the act are of particular interest to family physicians: the Economic Injury Disaster Loan (EIDL) and the Paycheck Protection Program (PPP).

Paycheck Protection Program (PPP)

The PPP is a temporary program established under the CARES Act that allocated $349 billion to provide businesses that have 500 or fewer employees with funds for up to eight weeks of payroll costs (including benefits), as well as to pay interest on mortgages, rent on existing leases, and utility bills. The loans will be fully forgiven if used for these purposes as long as at least 75% of the amount forgiven was used for payroll. Loan payments are deferred for six months, there are no pre-payment penalties, they do not require collateral or personal guarantees, and there are no fees charged to borrowers. The loan has an interest rate of 1% and is due in two years.

The maximum loan amount is 2.5 times each business’ 2019 average monthly payroll costs, including benefits, with a $10 million cap. Physician-owners can include their own payroll compensation, but any employee-owner compensation over $100,000 per person is excluded. Independent contractors do not count and should file for their own PPP loan.

The main stipulation of the PPP is that businesses must keep employees on the payroll, or re-hire by June 30, AND must maintain salary levels at 75%. If you reduce your full-time employee headcount or decrease salaries and wages by more than 25% for any employee that made less than $100,000 (annualized), the forgiven amount will be reduced. The American Academy of Family Physicians and U.S. Department of the Treasury offer additional information on requirements and terms of loan forgiveness, or you can check with your SBA lender.

Small businesses and sole proprietors can apply now. Independent contractors and self-employed individuals can apply beginning April 10. The program is open until June 30, but you should apply quickly because there is a funding cap and high demand for these loans.

Apply through any existing SBA lender. Your local lender with whom you have an existing relationship will be your best bet for getting your loan processed and approved. The application is available on the Treasury Department website. You’ll need to supply your lender with payroll documentation.

Be advised that if you receive funds under both EIDL and PPP, the loan proceeds cannot be used for the same purpose and the EIDL advance will be subtracted from the PPP forgiven amount. The PPP loan can, however, be used to refinance the EIDL loan.

Economic Injury Disaster Loan (EIDL) and advance

This is an existing program that has been expanded by the CARES Act. The application process has also been eased because of the COVID-19 emergency. Small business owners in all U.S. states, territories and Washington, D.C., are currently eligible to apply for a low-interest loan of up to $2 million due to COVID-19. The loans can be used for working capital to pay fixed debts, payroll, accounts payable, and other bills that cannot otherwise be paid as a result of the disaster.

The interest rate for these loans is 3.75% for small businesses (500 employees or fewer) and 2.75% for private nonprofits, with terms for repayment of up to 30 years depending on each borrower’s ability to repay. Payments are deferred for one year. No collateral is required for loans of $25,000 or less, and up to $200,000 can be approved without a personal guarantee. The borrower must allow the SBA to review its tax records.

Expansions of the program due to COVID-19 include:

• Emergency advance: Eligible applicants may receive a $10,000 emergency “advance” or grant which will not have to be repaid if it is used for authorized reasons. This advance may be available even if your EIDL application is declined or still pending. Near the end of the EIDL application, you will be asked to check a box if you would like to be considered for the grant. Funds will be made available within three days of a successful application. But if you also receive a PPP loan, the grant will be subtracted from the forgiven amount of the PPP loan.
• Express Bridge Loan Pilot Program: If you currently have a business relationship with an SBA Express Lender, you may access up to $25,000 quickly through an Express Bridge Loan Pilot Program. These can be term loans or used to bridge the gap while applying for an EIDL. They will be repaid in full or in part by proceeds from the EIDL loan.

The deadline to apply for an EIDL and advance is Dec. 16. Applications are available on the SBA website.

Remember, there are no fees to borrowers to apply for these loans. Be wary of scammers offering to apply for you in return for a fee, especially via email.

The primary points of contact for information on both these loan programs is your local SBA Office or an SBA-qualified financial institution. You can reach the SBA by email at answerdesk@sba.gov or by phone at 1-800-827-5722.

Also, if you have an existing loan with the SBA that is not related to the COVID-19 emergency or another disaster you may be eligible for the Small Business Debt Relief Program. Under this program, the SBA will automatically pay the principal, interest, and fees of existing non-disaster SBA loans [7(a), 504, and microloans] for a period of six months, and  new non-disaster loans issued prior to Sept. 27, 2020. Learn more about the SBA Debt Relief program here.

— Sandy Pogones, MPA, CPHQ; Senior Strategist Health Care Quality, Practice Advancement