PROVINCETOWN — The Small Business Administration (SBA) has given birth to twins. Two huge, messy loan programs with complex instructions and chaotic rollouts have been dropped on its doorstep — and they’re supposed to save the economy now.
With official rules changing daily, even the experts are bewildered. For ordinary business owners trying to save their life’s work from ruin, the last two weeks have been something like a scavenger hunt mixed with a horror movie.
The overarching advice from those who know is surprisingly simple: the time to do both of these loans is now.
The Economic Injury Disaster Loan (EIDL) came out first, and it has two separate components. The Economic Injury Disaster Advance, or Grant, is up to $10,000: money that is supposed to be delivered quickly, with no repayment obligations, and no real restrictions on its use. It’s meant to get emergency money into the hands of businesses fast.
The same application will also generate an EIDL loan offer from the SBA, at some point several weeks from now. That offer, which the business owner has no obligation to accept, will be for a much larger chunk of money that can be used for almost any business expense, and repaid over a very long period of time at low interest.
“I’ve asked the SBA lending officers in Boston, and they still don’t know how the size of this loan will be calculated,” said Marc Goldberg of the Service Corps of Retired Executives Cape Cod. “There will be a formula connected to your gross annual revenue, but we don’t know what it is.”
SBA has confirmed how the advance will be calculated, however: it’s $1,000 per employee, up to $10,000.
A wide range of small businesses are eligible for EIDL loans and advances, including nonprofits, sole proprietorships, independent contractors, and even the owners of rental property. A business without a payroll would not be eligible for the advance, said Goldberg, but could still be eligible for the EIDL loan to help cover business expenses.
The SBA also sent out important news this week: anyone who did the early versions of the application, with uploaded files and tax returns attached, now needs to reapply under the streamlined application in order to receive the advance. Applying again under the streamlined application will not invalidate or slow down the loan process, according to SBA’s Massachusetts office, but it’s necessary to receive the advance. Many business owners may not know they need to apply again — so tell your friends.
Payroll Protection Plan
PPP loans are smaller than EIDLs. They’re meant to be used for very specific purposes, and to be completely forgiven at the end of this year. If the money is used for other purposes and not forgiven, the balance will convert into a low-interest loan.
Congress appropriated $349 billion for the PPP loan program alone, but there is real concern that the money could run out quickly. Lori Meads, president and CEO of Seamen’s Bank, encouraged business owners to contact their lender and their accountant, and prepare their applications sooner rather than later.
“You think $349 billion is a lot of money, but when you have everyone in the country applying, and it’s two-and-a-half months of payroll for each of them, it may get gobbled up very quickly,” said Meads. “We are trying to do everything we can on our end, and then get these into the hands of the SBA as fast as we can.”
PPP loans are calculated at 2.5 months of last year’s payroll, and full forgiveness requires business owners to maintain or restore their staffing to last year’s reference level by June 30. If a business makes it back to only half of last year’s staffing, then half of the loan could be forgiven and the other half would become a low-interest loan.
An important detail for the Cape: workers with a primary residence outside the U.S. — meaning all J-1 and H2-B employees — are excluded from both last year’s and this year’s payroll calculations, said Meads.
Early on it appeared that businesses had to be in operation, with an active payroll, on Feb. 15, 2020, to qualify for PPP loans. This would have presented a challenge to many seasonal businesses. But on Monday the SBA released new guidelines that would businesses that were open in May and June of 2019 to also qualify.
“The thing I would recommend, having owned a small business for 30 years,” said Goldberg, “is talk to your accountant. Whoever does your taxes. They understand how to maneuver through the nuances of your business, so that it makes sense with this legislation.”
“This is all moving ridiculously fast,” said Meads. “We are updating our website daily — as soon as resources come out, we are posting them so our customers can educate themselves.
“We need to ensure that businesses get the support and the funding that they need,” Meads continued, “because it’s going to affect all of us.”