The U.S Small Business Administration Provides Low-interest Disaster Loans for Small Businesses Including Tech Startups

In response to the COVID-19 situation, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and the Families First Coronavirus Response Act (“FFCRA”) were passed to provide support to individuals and small businesses affected by COVID-19. If you are a small U.S business with less than 500 employees, you may be eligible for these aid loans.

If you do not have any employees on the payroll, you would not be eligible for the Paycheck Protection Program since it is essentially designed to keep workers on the payroll. However, you may still be able to apply for Economic Injury Disaster Loans.

The applications will be submitted online on www.sba.gov.

Paycheck Protection Program

The Paycheck Protection Program is a loan to provide an incentive for small businesses to keep their workers on the payroll. This loan has a maturity of 2 years and an interest rate of 1% (increased from 0.5%), and the loan payments will be deferred for six months. The Paycheck Protection Program will be available through June 30, 2020.

This program is for any small business with less than 500 employees including sole proprietorships, independent contractors and self-employed persons affected by coronavirus/COVID-19. All US businesses, whether or not they are owned by foreign individuals or companies, should be able to apply PPP loan program so long as the size eligibility requirements and other eligibility requirements are met.

If your business does not terminate any labor contract, the U.S Small Business Administration will forgive the portion of the loan proceeds that are used to cover the first 8 weeks of payroll and certain other expenses following loan origination. The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.

Economic Injury Disaster Loans

Small business owners in all U.S. states are eligible to apply for a low-interest loan due to Coronavirus (COVID-19). Economic Injury Disaster Loans can be used to pay fixed debts, payroll, accounts payable and other bills that cannot be paid because of the COVID-19’s impact.

The U.S Small Business Administration offers loans with long-term repayments to keep payments affordable, up to a maximum of 30 years. These terms are determined on a case-by-case basis, based upon each borrower’s ability to repay. The interest rate is 3.75% for small businesses. The loans will be available until June 2020.

The required documents for the economic injury disaster loans application are SBA Form 5 (Business loan application); SBA form 413 (Personal financial statement); SBA form 2202 (Schedule of liabilities listing all fixed debts); IRS form 4506-T and your most recent federal income tax returns. SBA might require additional documents.

Economic Injury Disaster Loans could be used for the purposes listed below:

· Providing paid sick leave to employees unable to work due to the direct effect of the COVID–19

· Maintaining payroll to retain employees during business disruptions or substantial slowdowns

· Meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains

· Making rent or mortgage payments

· Repaying obligations that cannot be met due to revenue losses

To be eligible for the Economic Injury Disaster Loans, you have to be in business for the 1-year period before the disaster. The applicant must be either a business with not more than 500 employees or an individual who operates under a sole proprietorship, with or without employees, or as an independent contractor. Additionally, the applicant have to satisfy all of the below:

· Applicant is not engaged in any illegal activity (as defined by Federal guidelines).

· No principal of the Applicant with a 50 percent or greater ownership interest is more than sixty (60) days delinquent on child support obligations.

· Applicant is not an agricultural enterprise (e.g., farm), other than an aquaculture enterprise, agricultural cooperative, or nursery.

· Applicant does not present live performances of a prurient sexual nature or derive directly or indirectly more than de minimis gross revenue through the sale of products or services, or the presentation of any depictions or displays, of a prurient sexual nature.

· Applicant does not derive more than one-third of gross annual revenue from legal gambling activities.

· Applicant is not in the business of lobbying.

· Applicant cannot be a state, local, or municipal government entity and cannot be a member of Congress.

PPP vs. EIDL

While an applicant can apply for both, it cannot be granted with the Paycheck Protection Program and the Economic Injury Disaster Loan for the same purpose. If you are eligible for Paycheck Protection Program, it could be a better option since the U.S Small Business Administration might forgive some portion of the loan.

Please keep in mind that contractors are not deemed as employee, therefore Paycheck Protection Program does not cover the amount your company pays to its contractors. However those contractor payments might still be covered under Economy Injury Disaster Loan Program. Please be advised that all applications will be evaluated on a case by case basis.

Economic Injury Disaster Loan could allow you to have higher amounts of loan than Paycheck Protection Program payments. The amount and the term of the loan will be determined on a case by case basis.

If your company is a tech startup that pays its contractors and pays bills like rent including virtual office fees etc., please consider contacting your bank in the USA about your Economic Injury Disaster Loan application.