As I write this, Congress is voting on the second tranche of funding for the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program. The bill, which includes other funding provisions, is certain to pass. It then goes for Presidential signature and the wheels start turning to open the application portals. By the time you are reading this, hopefully those wheels are in motion.
As is widely known, the first phase of both those programs ran out of money within two weeks, and that was even with banks and the SBA having to gear up to process getting that much money through their systems. That was a rocky experience, but now, with the benefit of that experience and the addition of many more participating lenders, it is reasonable to think funding will be exhausted much quicker this time. So, business owners need to be prepared to apply as soon that is possible.
Basic definitions first: the PPP is based on 2.5 times a business’s average monthly payroll, is offered through financial institutions, and is intended largely to do just what it says, protect workers’ paychecks. The loan can be entirely forgiven if, for the eight-week period after disbursement, no more than 75% of the proceeds have been spent on payroll and 25% on mortgage interest/rent/utilities, respectively. Amounts not forgiven count as loans at 1% interest for 2 years, with no payments for the first six months. There are numerous technicalities in addition to that basic summation, so borrowers should check with their bankers, accountants, or the SBDC relative to their situations. Keep checking with your financial institution to see if they are open for application or if the application you submitted previously that was not funded is still in their queue.
The EIDL is a direct loan from the Small Business Administration, can be accessed online at the SBA, and is intended for a broader scope of working capital expenses. It comes with an advance of up to $10,000, if requested, based on a formula of $1000/employee, is a 3.75% loan for for-profit businesses and a 2.75% loan for nonprofits, and can have a term of up to 30 years. Keep alert for the opening of the SBA online portal.
Now to the preparation, and I unabashedly borrow some of the PPP tips from an article by Memphis Business Journal’s Meagan Nichols.
For the PPP:
• Be current – use the most current version of the application form
• Be clear – show how you arrived at the monthly payroll and loan amounts
• Be thorough – follow all directions and leave no blanks on the application
• Be yourself – make sure the name under which you are applying is your exact business name
• Be prepared – have all your supporting documents ready when you apply
• Be in touch – contact your banker with questions
• Be timely – if your banker asks for additional information, jump on a response — delays in responding will delay the process
• Be aware – if you are not satisfied with the service you received from your bank in the first round of PPP funding, note that many cloud-based financial technology firms, such as Intuit, PayPal, Square, Quicken, and Kabbage are offering PPP funding and may be accepting applications now in preparation for the fund roll-out. As these enterprises operate their core businesses on a digital business model, they are well prepared to work online, and borrowers may experience faster results than they might from brick and mortar institutions. This is especially important given the expected super-expedited nature of this second PPP tranche.
For the EIDL:
• Think of this as a two-phase product: the advance, and then the full loan which will generally be for a larger amount than the advance, with an amount determined by the SBA, not specified by you.
• Be prepared – after the advance you will be contacted by the SBA to see if you want to move forward with a larger loan. Have ready detailed information on both your business’s prior and projected sales and expenses and your personal finances and have access to your tax returns.
• Be patient – as hard as that is. Keep in mind that EIDL comes from one source, the SBA, vs the thousands of sources processing the PPP.
For either loan:
Be advised that you can’t pay for the same expense using money from both loans – no “double-dipping” – and that the money needs to be used per the intents of the respective programs and as you attested to when applying.
Above all, analyze your situation and ascertain if either of these loans is right for you. What is your plan for using the money, and how, or if, will you operate once these funds are exhausted? There are other relief avenues, like payroll credits, that might be a better option for your situation.
Dennis Boyd is the director of the West Hawaii Small Business Development Center
Hawaii SBDC Network is funded in part through Cooperative Agreement No # SBAHQ‐13‐B‐0048/0001 with the U.S. Small Business Administration and the University of Hawaii at Hilo. All opinions, conclusions or recommendations expressed are those of the author and do not necessarily reflect the views of the SBA.