How to Apply for a Small Business Loan Under the Stimulus Bill

The first-come, first-served Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) from the federal CARES small business stimulus package are dispersed quickly — so there is pressure to act fast. But it’s important to ensure that you are well informed and prepared as you apply for funds to protect your business and employees during the COVID-19 pandemic. Here is what you need to know to apply for CARES act stimulus bill funds.

Paycheck Protection Program

PPP loans are the most popular and best funded program in the CARES act small business package. The promise of these loans, which provide 2.5 times its monthly payroll costs to a small business, up to $10 million, is that they are 100 percent forgiven if you use the funds and follow the guidelines as described by the program.

This means that you cannot lay off staff and will rehire any staff that were let go due to the effects of the COVID-19 epidemic by June 30, 2020. There are also ramifications if you reduce pay more than 25 percent, or if you use less than 75 percent of PPP funds for approved payroll costs.

Who Can Apply? 

PPP loans are made available to the following entities that were in operation as of February 15, 2020:

• Businesses and 501(c)(3) nonprofits that are under 500 employees or fit the industry standard provided by the Small Business Administration (SBA)
• 501(c)(9) veterans organizations
• Tribal businesses
• Accommodation or food services industry companies with fewer than 500 employees at each independent location
• Independently owned franchises, sole proprietors, self-employed workers, independent contractors, and gig workers

What Is the Process to Apply?

The application process will generally go more quickly and smoothly if you use a lender that you have worked with before. If your usual bank is not participating in the program, this tool will help you find a lender participating in your area. Additionally, financial tech companies Intuit, PayPal, and Square are all participating in the PPP loans and may be an option if you have ongoing relationships with them.

The application form for the PPP loan is available for download at the SBA website and will give you an idea of the documents you will need to have handy. Your lender will need your payroll documents from 2019 and potentially the first quarter of 2020 to verify your PPP loan amount. Loans will be determined by evaluating your average monthly payroll costs from March 1, 2019, to June 30, 2019. If you were not in business at that time, they will use your payroll costs from January 1, 2020, to February 15, 2020. Mortgage documents and utility bills may also be necessary to show the full extent of your need.

It does not hurt to bring more information to the table than you think you will need. The more you prepare, the less likely it is that you will have to scramble when applying. Also, prepping your case can sometimes have the added benefit of helping you identify areas to slim or restructure for more cost efficiency. You may recognize, for example, that you can save money with a more flexible and affordable workers’ compensation insurance solution like Cerity’s PayGo option.

What Else Should I Know?

While you can apply for both the PPP and EIDL (more on the EIDP application process below), you can only apply for one PPP loan. Some businesses may attempt to enhance their chances of getting a PPP loan by sending applications to multiple banks at once. If you use this strategy, make sure that the banks contact you to verify that you’ve been approved before sending your application through to the SBA. If multiple applications are sent to the SBA, you may be disqualified from funding.

Also, make sure to review the expectations of the loan. Verify that it is feasible for your business to maintain the terms and that you have the ability to pay the difference in unforeseen circumstances. For instance, for the loan to be forgiven, at least 75 percent of the amount must be spent on payroll. It also can help to take account of the staffing expenses that your business carries but that are not covered by the PPP loans, including workers’ comp insurance. If the terms of your PPP loan prevent you from streamlining your staffing levels, not even cutting costs with cheap workers’ compensation insurance will allow you to stay agile in a fluctuating market.

Economic Injury Disaster Loans

The EIDL program is smaller than the PPP, but it provides a wider range of uses for loan funds, including payroll, business obligations, increased production or other operational costs. These loans provide up to $2 million to pay for expenses that could have been met had the disaster not occured. Currently, the program is only accepting applications for agricultural businesses.

Those who are approved for the EIDL can also potentially receive an emergency advance of up to $10,000 to cover costs while the EIDL is being processed. While this advance does not need to be paid back, it is tied to the number of staff employed by the organization, so companies with fewer than 10 employees are limited to receiving $1,000 per staff . An EIDL issued between 2/15/20 and 6/30/20 can also potentially be refinanced into a PPP loan.

Who Can Apply?

The EIDL and advance are available only for agricultural businesses impacted by the COVID-19 pandemic. The following entities may be eligible for funding:

• Agricultural businesses includes those businesses engaged in the production of food and fiber, ranching, and raising of livestock, aquaculture, and all other farming and agricultural related industries with 500 or fewer employees.

What Is the Process to Apply?

Once appropriations levels are refreshed for this program, the SBA will likely reopen applications for these loans on its website. If you have questions about the application process, contact the SBA disaster assistance customer service center at 1-800-659-2955 (TTY: 1-800-877-8339) or e-mail. Note that the application process may differ once the SBA begins accepting applications for the next round of funding.

Be prepared to show documentation for the areas where you plan to use the loan funds. You will likely need to provide evidence of how the COVID-19 pandemic impacted your operating costs and revenues. If you plan to use funds to supplement payroll, mortgage, rent, utilities, and production costs, make sure that you are bringing your tax documents, payroll information, bills, leases, and other financial paperwork that illustrates your need. This will help the SBA to determine the appropriate amount for your loan.

What Else Should I Know?

If the program application works the same as the first round, you will be able to request the EIDL advance when you submit your loan application on the SBA website. While you won’t need to repay the EIDL advance, the loan itself will need to be repaid with a 3.75% interest rate (2.75% interest for nonprofits). The loan payments can be deferred for six months, and must be paid over a span of no more than 30 years.

What Happens If the Second Round of Appropriations Runs Out Before I Can Apply?

Some financial experts have warned that the second batch of appropriations for the PPP and EIDL funds will go faster than the first. Congress has already signaled that they are ready to start the next round of negotiations. Like many conditions right now, it is unclear how long the second round of applications will be open.

However, by evaluating your position and identifying areas where your company needs additional financial support, whether from a PPP or EIDL or a combination of the two, you may find that there are other loan programs that offer an even better fit.

One possibility is the Small Business Debt relief program, in which the SBA will pay the principal, interest, and fees for current and new 7(a) loans, 504 loans, and microloans through September 27, 2020. You can learn more about the terms and how to apply for these loans on the SBA website. You can also access free training, advice, and counseling services for small businesses through the SBA resource partners to help you determine your next steps.

At Cerity, we’re here to protect your business, so you can focus on finding the right strategies for your way forward. We are committed to providing cheap workers’ compensation solutions so you have one less thing to worry about.

Interested in learning about our options for small businesses like yours? To get a free quote online, visit our workers’ comp quote tool.