Q&A: How to get help for a small business affected by a viral crisis
NEW YORK (AP) – Millions of small business owners will look to the government for help with an individual and national cataclysm, the economic devastation caused by the coronavirus outbreak.
The government said it would start disbursing loans to business owners and freelancers on Friday under the Paycheck Protection Program, which is part of the $ 2 trillion relief package signed last week. For many businesses, this may be the fastest way to rebuild the lifeblood of any business – the cash flow that helps a business pay its bills.
The program could be key to economic recovery: small businesses employ about half of private sector workers. By some estimates, as many as 20 million people will have lost their jobs by the end of April.
Here are questions and answers on financial assistance available through government and other sources:
Are These Paycheck Protection Loans Free?
They can be, if they are used to retain or hire workers. As of Friday, the Small Business Administration is guaranteeing $ 349 billion in potentially repayable loans as part of the bailout. A business with up to 500 employees, including solo owners and freelancers, can borrow up to $ 10 million to repay over two years at an annual rate of 0.5%. Money used to pay wages can be forgiven, and some of the money used for rent, mortgage interest, and / or utilities can be at least partially forgiven. Payments are deferred for six months.
You could technically get the full loan amount set aside. But if you cut jobs – say you have 10 employees, let them go, and only hire five – the loan forgiveness amount will be reduced, and you will have to pay back some of it.
But a caveat from the government: given that many homeowners are expected to take advantage of loans, it is expected that no more than 25% of the amount remitted can be for things other than payroll – rent, mortgage interest and utilities. So there is a good chance that you will have refunds coming up.
You can find out more about loans here.
How do I get one?
The government says it will be a quick and streamlined process – some businesses might get the money the same day, unlike the weeks it takes to apply for a traditional SBA loan. You can apply at any bank, credit union, or farm lending system institution, not just a traditional SBA lender. Most businesses are expected to apply online, through a financial institution’s website.
You don’t need any collateral or personal guarantee. But you’ll need to document your payroll, rent, mortgage interest, and utility expenses. The salary portion of the loan is based on the monthly average of what a business paid employees in the year before the loan was granted.
When will my loans be canceled?
The government will calculate the amount of the loan which will be canceled after June 30. The program covers the period February 15 to June 30 and owners will need to document how many workers they employed during that period and how much they were paid.
If you’ve laid off workers, you have until June 30 to rehire them – but the sooner you rehire and start paying them off, the bigger your loan forgiveness will be.
Can I also get a disaster loan?
Yes, but …
The SBA grants what are called economic disaster loans. These aim to help businesses whose lost revenues have left them without working capital, making it difficult, if not impossible, to pay their operating expenses, including payroll, fixed debt payments and accounts payable. But a business that obtains a disaster loan cannot use the money for payroll purposes if it also obtains a paycheck protection loan.
Disaster loans give homeowners up to $ 2 million at an annual rate of 3.75%. Loans can be taken for 30 years, but the terms of each loan will be determined on a case-by-case basis and will depend on the financial situation of each business.
Businesses can also apply for a loan advance of $ 10,000 which can be granted within three days, according to the SBA. This does not have to be refunded.
Disaster loan applications are made directly through the SBA on their website https://covid19relief.sba.gov/
What other money is available?
The Federal Reserve is working on a program to provide loans directly to small businesses. Details have yet to be announced.
States, counties and cities can provide loans or grants to small businesses. And those who have not yet announced programs can still create them – the epidemic has not yet reached its peak. Check online with your state or local agencies that support small businesses.
Can freelancers also get unemployment benefits and a loan?
Yes. The bailout provides unemployment benefits for freelancers and independent contractors who have not qualified for such assistance in the past. So millions of people, including wedding photographers, graphic designers and writers, who have lost concerts or projects can get unemployment benefits. They also qualify for paycheck protection loans – but if they have both types of loans, they cannot use the money from the disaster loans to cover the payroll.
What about online loans?
Online lenders promise money fast – some pay off their loans the same day – and even in the best-case scenario, many businesses with shrinking cash flows turn to them. But in many cases, the money carries a high interest rate and / or large payments. And unlike traditional loans, the size of a payment may not be predictable – companies like PayPal, for example, will take a percentage of the income that goes into a borrower’s account.
Keep in mind that even if you end up paying back the full amount you borrow under the Paycheck Protection Program, you will only pay 0.5% over two years.
What about concessions from owners and other businesses?
Many small business owners have been in contact with their owners, bankers and suppliers, asking for more time to pay. And some have obtained concessions, especially when the company and its creditor or banker have a long-standing relationship.
Any concessions or grace periods that you can get, especially if they are interest free and penalty free, can be a good way to go. Owners and associates who want to keep your business can be accommodating unless they are also struggling with cash flow issues. It is also true that some, perhaps many, are tough businessmen; some are already suggesting that their tenants and clients seek government loans rather than helping them.
There are always family and friends, right?
Absolutely. And the people close to you may be ready and willing to help – if they can now. But, to maintain those strong relationships, if you get a loan from a loved one, you need direct and honest communication now and in the future about how the business is doing and when you are likely to pay them back. .