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Updated: Apr 10, 2020
The COVID-19 crisis has struck home for business owners everywhere. Many are coming face-to-face with their company’s solvency as businesses deemed non-essential across the country from hair salons to sporting goods stores are forced to shut their doors temporarily. The problem is that these businesses are, in fact, essential to the health of the U.S. economy, and business owners are grappling with how to avoid making the temporary shutdown permanent.
Of the more than 30 million small businesses in the United States, many will qualify for trillions of dollars in emergency business funding that have been earmarked for grants and government-funded low-interest rate loans. The SBA is waiving usual requirements such as collateral and personal guarantees, while some of the loan funds can qualify for forgiveness.
These federal programs could be the key to survival for American small businesses. Let’s explore some of the most compelling information you need to know about these emergency loans for small businesses.
There are two federal emergency business funding programs that are relevant to business owners, both of which are run by the SBA. You can pursue both concurrently, but the amount you qualify for could determine how much of the funds are eligible for forgiveness.
The two emergency loan programs include a $349 billion Paycheck Protection Program (PPP) – which is part of the $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act – and the $7 billion Economic Injury Disaster Loan (EIDL). Both bills are designed to place much-needed cash flow in the hands of business owners so that they can keep the payroll intact and their doors open when the economy gets restarted.
When you’re filling out your EIDL application, you can also submit a request for a grant of up to $10,000. If approved, the SBA will deliver the emergency business funding in as little as three days.
If you are a small business with 500 or fewer employees, you can qualify for either of the emergency small business loans. For the Paycheck Protection Program, this includes nonprofits, veteran-owned organizations, tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors. For EIDL, it includes sole proprietorships, independent contractors, coops and employee-owned businesses, tribal entities, and nonprofits.
Chances are you’re eligible for an emergency loan for small businesses. All 50 U.S. states are now deemed disaster zones, making it easier for you to qualify.
Under the Paycheck Protection Program, you can borrow up to 2.5 times your average monthly payroll expenses from the last year. These emergency loans have a cap of $10 million. Apply through any SBA 7(a) lender, such as a bank or another federally-insured depository institution, credit union, Farm Credit System, or through an approved fintech company.
At Funding Circle, the cap is $500K, with a 1% interest rate and maturity of two years. You can find the application here. Additionally, you can calculate how much you may be able to borrow with Funding Circle’s CARES Act SBA Loan Calculator.
For EIDL, the loans can be up to $2 million. You can expect a term of up to 30 years with a fixed interest rate of 3.75% for small businesses and 2.75% for nonprofits. The SBA could approve you for emergency business funding based on your credit score alone. Also, a prior bankruptcy filing won’t disqualify you.
Considering that the financing is designed to help you keep employees on the payroll, loan forgiveness is tied closely to keeping your employees. Under the Paycheck Protection Program, funds that are directed toward specific purposes, including payroll expenses, mortgage interest, rent, and utility payments in the eight-week period from when the emergency loan was issued, is forgivable. Keep track of those payments and be prepared to provide documentation after the eight weeks. The expectation is that 75% of the forgiven amount should be directed toward payroll costs.
As for the EIDL grant, you won’t have to repay the funds that can be applied to specific purposes. These purposes include those things such as paid leave, keeping payroll intact, rising costs as a result of disruptions in the supply chain, mortgage/lease payments, or other bills that would otherwise be left unpaid as a result of COVID-19-related revenue loss.
If you also receive a PPP emergency loan for your small business, the amount of it that qualifies for loan forgiveness will be reduced by the size of the EIDL grant.
The short answer is yes. The programs have a ceiling on the amount of funding they can provide to small businesses. Given the unprecedented demand, however, you shouldn’t be left high and dry. As of April 7, the Department of the Treasury was working on securing another $250 billion for the PPP program to ensure that business owners receive the emergency business funding they so desperately need.
As of April 3, more than $1.8 billion in PPP emergency loans for small businesses has been processed by the SBA, the lion’s share of which have been through community banks. Bank of America says it’s received “60,000 applications” from the small business community requesting more than a combined $6 billion.
According to some small business owners documenting their experience on Twitter, major banks have had a difficult time keeping up with demand for Paycheck Protection Program loans. More than one business owner who says they are customers in good standing of a major bank was denied the government-backed emergency loans for small businesses. One reason could be that banks such as Bank of America may be requiring that business owners have a “small business lending relationship” with the bank as of 2/15/2020.
The good news is fintech companies such as Funding Circle have also begun processing PPP loans and are filling in with emergency business funding where banks leave off.
Funding Circle, the largest small business lending fintech is one of a few non-depository online lenders in the United States that was recently approved to provide Paycheck Protection Program loans. We offer the PPP application in four languages: English, Spanish, Mandarin and Hindi.
On a final note, as challenging as the COVID-19 pandemic may be, it’s not the first crisis to hit the small business community. And as billionaire Mark Cuban reminds us, some of the most life-changing businesses are born in times of adversity: