Confusion still abounds about the two main federal assistance programs available to small business owners struggling during the pandemic.
A webinar hosted by the Missouri Women's Business Center, the Callaway Chamber of Commerce and Callaway Bank on Monday worked to clear up lingering questions. Jessie Yankee, director of the MoWBC, noted she's not a legal expert — make sure to speak to a qualified professional before using any of the below information.
Two major programs are currently open to small business owners: the Paycheck Protection Program and Economic Injury Disaster Loans.
"We've heard a lot of confusion about the two different products," Yankee said.
Paycheck Protection Program
The PPP, created by Congress as part of the March bailout package, offers qualified borrowers a low-interest loan to cover eight weeks of payroll and other expenses. However, if borrowers meet certain requirement, the government will forgive the loan's principal and interest.
Though the program is administered by the Small Business Association, hopeful borrowers are supposed to apply for the loans through a bank, federally insured credit union or other 7(a) lender. Local designated lenders include The Callaway Bank, Central Bank and United Credit Union, alongside many other bank chains.
"The intention is to support continue income to the households of employees and help employers retain them during this troubled time," explained Kim Barnes, Callaway Bank president and CEO.
Some banks may only lend to pre-existing customers; call to find out.
"Many banks were not SBA lenders as recently as last week," Barnes said. "Every bank is focusing on their existing clients first, but if your bank doesn't respond or can't participate in the program, submit an application and we'll put you in the queue."
With such a new program, many of its details are still shifting and solidifying, but there are a few the SBA has made clear so far.
It's open to businesses with fewer than 500 employees, 501(c)(3) organizations including churches, and 501(c)(19) veterans organizations that were in operation as of Feb. 15.
If the employer wants the loans to be fully forgiven, they'll have to meet a few guidelines:
The funds must be used to cover wages and salaries of up to $15,384.62, total, per employee (including part-time employees) for the eight-week period; interest on mortgages; rent; and utilities
At least 75 percent of the funds must go toward payroll
The employer must not lay off employees during the eight-week period or cut salaries/wages; if the headcount declines or salaries and wages fall, the forgiveness will be reduced.
"There will be monitoring (of the PPP) — keep track of how you use the funds," Yankee advised. "Lots of people are opening a separate account at their bank to put the proceeds into."
If the business or nonprofit doesn't meet all the guidelines, part of the loan may still be forgiven; the SBA hasn't yet released the details of the forgiveness process. For the amount that isn't, the loan has a maturity of two years and an interest rate of 1 percent, and loan payments will be deferred for six months. No collateral is required.
Qualifying businesses and organizations can calculate the maximum loan they're eligible for using a relatively simple formula: Take the gross payroll for the last 12 months (up to $100,000 in salary per employee; leave out salary paid in excess of that amount), divide it by 12 and multiply that number by 2.5. If you've also been approved for an EIDL loan, add that to the total, too.
"The gross payroll, as we understand it, is the gross amount they pay to employees — but you can add on the employer-paid part of 401(k)s and health premiums; I've been advised they can also add the employer-paid part of state and local taxes," Barnes said.
Your lender will provide further guidance during the application process.
The program is available through June 30 and is first-come, first-serve. Yankee said there will likely be another aid package — including more PPP money — after the eight weeks covered by this first PPP funding is up. Employers can only apply once in the eight-week period, so be sure to apply for the full amount you're eligible for, she advised.
"If you don't use it all you can give it back, no problem," she said.
The program will also open to applications from independent contractors, sole proprietors and working owners on April 10; details of how that application and forgiveness process will work are still coming together. Any 1099-using independent contractors that work at a business applying for PPP must apply separately, Yankee said.
Economic Injury Disaster Loans are handled entirely by the SBA; though they existed before the COVID-19 pandemic, they've been tweaked. They're meant to provide support for small businesses (fewer than 500 employees) that suffer losses in the wake of disasters.
"You can apply for both (PPP and EIDL) but you can't use them for the same expenses," Yankee said.
Those loans cover up to $2 million with loan terms of up to 30 years. The interest rate is 3.75 percent for for-profit businesses and 2.75 percent for nonprofits.
SBA has introduced a new component in response to COVID-19: A $10,000 advance to "provide economic relief to businesses that are currently experiencing a temporary loss of revenue." That $10,000 does not need to be repaid. Visit covid19relief.sba.gov to learn more, or read bit.ly/2JPaOy9.
"I think it's important to understand burden SBA has been tasked with," Barnes said. "As a government agency, they're not used to turning on a dime and they don't have unlimited resources; their regional offices are staffed very thinly. They've done a phenomenal job given task they've been handed. Another few days is going to help clarify the landscape for us. Take a breath if you can, and be patient."
More options for aid exist, including the Employee Retention Tax Credit — talk to your banker or certified public accountant to learn more.
Currently, Yankee and Barnes suggest turning to PPP first, followed by EIDL and other programs.
For one, the turn-around on PPP is quicker.
"Applications opened Friday, and we worked all weekend submitting those applications," Barnes said. "We have the approvals in hand; hopefully today we get a little further guidance about how to disburse the funds. We hope to start disbursing in next day or two."
Meanwhile, Yankee said she hasn't heard from a single business owner who's received the SBA's EIDL emergency advance, though many have applied.
Second, the loan terms for PPP are friendlier to businesses.
"Even if it's not forgiven, it's still one percent for two years," Barnes said. "That's extremely affordable money."
But, they admitted, there are still some downsides to the program. For many businesses, payroll makes up much less than 75 percent of their overall expenses; the more rent or mortgage a business owes compared to its payroll, the less helpful it will be.
Marty Wilson runs the Holts Summit Community Empowerment Foundation, which supports the Holts Summit Public Library by paying its rent. It's staffed entirely by volunteers, meaning there's no payroll whatsoever.
"We're making sure bills get paid for the library project," he said. "We've applied for our 501(c)(3) but haven't gotten the certificate back yet, so we're in a weird place."
"That's a tough one," Yankee said. "There are so many people who have a unique situation; we're trying to put together as much information as can."
For more information, reach out to the MoWBC (573-818-2980) and CCoC (573-642-3055). To view the webinar and associated materials, visit bit.ly/2yxiK4O.