Dear Non-Profits, Small Businesses, Artists, Freelancers, Gig Workers, Self-Employers, Part-Timers, and Solo Shop Warriors Wondering What’s Next: This Money is For You. Please Take It.
Last updated 4.27.2020 — see where notated below.
Para una versión de este artículo en español, haga clic aquí.
For artists, gig economy workers, farmers, farm workers, food entrepreneurs, immigrant business owners, worker cooperatives, and nonprofits, we have specific guidance coming to you from lawyers with expertise in those areas, so stay tuned.
- NEW as of 4.9.2020: For additional information specific to immigrants and worker cooperatives, please click here.
- NEW as of 4.21.2020: For additional information specific to farm and food businesses, please click here.
4.27.2020 Update: After a shutdown due to the funds for both EIDL and PPP running dry, the PPP application process is back up and running. EIDL will reportedly not be reopened, since the SBA believes that the new round of funding ($10B) will likely be exhausted by the existing backlog of applications. The SBA states that applicants who have already submitted their EIDL and PPP applications will continue to be processed on a first-come, first-served basis, but if you have yet to find a lender that will work with you on the PPP, here are three that do not appear to require applicants to be existing customers:
1. PayPal: https://www.loanbuilder.com/ppp-loan-support
2. Celtic Bank: https://start.celticbank.com/paycheck-protection-program
3. Citizens Bank: https://citizensbankcaresactppp.fundation.com/CitizensBankCaresAct
And here is new guidance from the SBA on how to calculate PPP loan amounts based on entity types: https://home.treasury.gov/system/files/136/How-to-Calculate-Loan-Amounts.pdf
It’s been a hard month for a hustler.
Maybe you’ve already laid your people off and are sick over it. Maybe you’re still holding on, committed to the mission, but sense that layoffs, ruined credit, and shattered dreams are inevitable. Maybe you just launched your business last month, or you’ve been supporting your family one gig at a time for years and are now wondering how you’re going to make it through the week, let alone through next month and beyond. You’ve heard varying stories about loans and grants and other forms of relief bouncing around Congress and eventually coming down the pike through the CARES Act — the Coronavirus Aid, Relief, and Economic Security Act — but you aren’t sure what applies to you and what doesn’t, what’s real and what isn’t. It’s all moving so fast and you can’t keep up.
It is confusing and exhausting, and it’s enough to take anyone to the brink. But as of March 27th’s signing of the CARES Act into law, there are resources meant for you, your business, your organization. This $2.2 trillion dollar package only works the way it’s supposed to if you take the money that’s been set aside and you use it, and then you help your struggling friends and family do the same. Let me break the basics down for you, and quickly, since time is of the essence. Note that I’ve included links to the original text of the law and other resources where relevant below — feel free to dig in for yourself.
1. The CARES Act’s Paycheck Protection Program (PPP) can keep wages flowing to you and your workers without folks going on unemployment.
Businesses and non-profits with less than 500 employees, as well as sole proprietors (those of you who make money on your own and who have not formed a legal entity) and other independent contractors, such as single-member LLCs — and even ones that are newly in operation — are eligible for this expanded Small Business Administration (SBA) 7(a) loan program under Sec. 1102 of the Act. In the small-shop world, that’s basically everyone.
The amount of 7(a) loan money you’re eligible to receive is equal to two-and-a-half times the amount of money your business or non-profit would typically spend in a month on payroll. “Payroll” is broadly defined to include an average month of:
· wages and commissions for all full-time and part-time employees (wages for high-earning individuals are capped at $100, 000/year),
· the amount of tips typically made by your workers (including cash ones — looking at you, bars and restaurants),
· costs of benefits, and of state and local employment taxes, and
· wages you’ve paid to sole proprietors and contractors (similarly capped at $100,000/year),
which is then multiplied by 2.5. There’s a total loan cap of $10 million. If your business is seasonal, they’ll take that into account when calculating your monthly expenses.
2. You can spend that money on several key expenses…
This 7(a) loan money can be spent in many ways intended to keep your people paid and your business or organization afloat, including:
· payroll and other wages,
· continuation of group health care benefits while any employees you have are out on paid leave,
· insurance premiums,
· mortgage interest (not principal — that’s what negotiation is for),
· utilities, and
· interest on any other debt obligations that were incurred before the covered period.
3. …and the amount of money you spend on certain types of expenses becomes free money.
Forgivable uses for your 7(a) loan include:
· payroll costs,
· mortgage interest,
· rent, and
In other words, those expenditures which are minimally required to keep your business functioning through this time are forgivable expenditures. As in, you use it to save your business and then you don’t give it back. This is the government’s way of putting free money into your hands so that you can keep your folks employed — or even bring them back on payroll — and keep your business or non-profit on life support until we get to the other side of this mess. Note that the loan portion of the 7(a) loan is shorter-term than the EIDL program discussed below — 2 years versus up to 30 years — which reflects this program’s intent of floating payroll through the rough months ahead versus securing needed working capital over the longer term.
4. There’s another SBA loan program available to small businesses and non-profits located in declared disaster areas — the Economic Injury Disaster Loan (EIDL) Program.
The EIDL Program has long been used for businesses and non-profits located in declared disaster areas — think of those operations impacted by tornadoes, floods, etc. Now that the entire country is seemingly on its way to a disaster declaration, EIDLs are available to more folks than ever. Like the 7(a) loans available through the Paycheck Protection Program, EIDLs are available to non-profits as well as businesses operating as corporations, LLCs, sole proprietorships, independent contractors, and even agricultural cooperatives, and this also includes non-profits and businesses that recently began operations — again, it’s a wide net.
The EIDL is intended to be used to cover:
· fixed debts (think mortgages or loan payments),
· accounts payable (suppliers, utilities, accountants, etc.), and
· other bills that can’t be paid because of the disaster’s impact.
Unlike the 7(a) loans, which must be applied for through an SBA-approved credit union or bank, the EIDL application process is completed directly through the SBA, online. The total loan amount is capped at $2 million.
4.6.2020 update: The SBA has received some heat for excluding some folks from their online EIDL application who were included as eligible according to the text of the law — farms and most other agricultural enterprises, for example (read more here). If you’re someone who falls into this camp, stay tuned, don’t give up, and keep in contact with groups and coalitions in the know so that you can apply as soon as you are able. Again, the money isn’t endless, so folks thinking about applying should do so ASAP.
4.10.2020 update: Some folks woke up on this Good Friday morning to advance amounts in their bank accounts. The SBA has claimed to be basing this amount on the number of employees — $1000 for every one employee — and purportedly gave no advance notice that the grant was on its way. Hoping other folks receive similar good news soon….
5. Up to the first $10,000 of an Economic Injury Disaster Loan could come to you in three days. If it does, you won’t have to pay that part back.
Sec. 1110 of the CARES Act permits the SBA to award emergency EIDL grants (not loans) of up to $10,000 to applicants within three days of receiving the application. These emergency grants can be used for any of the allowable purposes for EIDLs listed above and do not need to be repaid. If you request the advance, receive it, and then ultimately get denied for the loan, you still don’t have to pay it back. The rest of the loan balance would remain subject to the terms of the loan and need to be repaid, though it’s worth noting that EIDLs carry no prepayment penalties. In other words, if you think you might need the money but aren’t sure, you can always take the EIDL and give it back early.
6. You can apply for both a 7(a) loan and an EIDL, though you can likely only accept one.
You cannot receive both loans for the same purposes. Some folks have opted to start the application process for both, however, as a means to not lose time while they learned more about whether they were able to qualify for one or the other, how much they were eligible for, and what made the most sense for their business or non-profit. Especially in this time of record applications, that might be a smart move, and applying for a loan does not prevent you from withdrawing an application or declining the loan later. For what it’s worth, the CARES Act does appear to suggest that the government is trying mightily to incentivize the 7(a) loan program, and especially the forgivable loans through the Paycheck Protection Program, as a means to maintain payrolls and stave off even higher unemployment rates across the country.
*3.31.2020 update based on a comment: he CARES Act explicitly dovetails the forgivable/grant portions of the 7(a) Paycheck Protection Program and EIDLs. This means that if you apply for and receive an advance on your EIDL of up to $10,000 (again, slated to arrive to you in three days or less and does not need to be paid back), and then you later apply and get approved for the 7(a) Paycheck Protection Program forgivable money, the advance amount shall be reduced from the loan forgiveness amount for a loan for payroll costs made under such section 7(a). So if (a) you think your uses could come from either pot, (b) time to get $$ into hand is truly of the essence, and (c) the SBA 7(a) process isn’t even up and running with the banks yet (or it is but you don’t mind filling out two separate loan applications), then starting with the advance grant request through the EIDL program and letting that amount be subtracted from a later potential 7(a) could be your best bet.
7. If all else fails — and maybe even if it doesn’t — drawing unemployment just got easier.
Sec. 2104 of the CARES Act provides Federal Pandemic Unemployment Compensation in the amount of $600 a week on top of what you’re entitled to through your state unemployment system from now through the end of July. The Act also specifically includes workers who are typically excluded from drawing unemployment as eligible recipients, including people who are self-employed, part-time employed, people with insufficient work history, and people who otherwise wouldn’t qualify for regular unemployment or extended benefits — again, this is broad. The quandary here becomes whether your folks (or you) might get a raise by sitting it out for the next few months and how your business or organization might best be sustained in the meantime. You might have to get out a calculator and crunch a few numbers to see what makes the most sense for your business or organization and its people.
*4.6.2020 update: Some folks are rightfully concerned that they might not be able to get folks back to work when they are effectively making more money between now and the end of July being laid off. I wish I had an answer for you, but again, this is an ongoing discussion. In the meantime, here is an article detailing the implications of this conundrum from the perspective of the restaurant industry. As the next few weeks unfold, keep an eye on your industry leaders — this is a great time to subscribe to updates from industry groups — to learn more about strategies for dealing with this tension.
8. If you’ve got 50–500 employees, you have decisions to make before March 31st. (The littler folks should read this, too.)
An earlier piece of COVID-19-related legislation, the Families First Coronavirus Response Act (FFCRA), requires businesses with between 50 and 500 employees to provide additional weeks of paid emergency sick leave and paid Family Medical Leave Act leave for their employees — including for those employees who are caring for kids at home due to schools and day cares being closed. The Department of Labor now states that the start date for these benefits is April 1st, not April 2nd as previously thought. Businesses that carry their employees past March 31st can recoup costs in tax credits, but they’ll still need the cash on hand to float those extra weeks of payroll, which might further incentivize businesses to apply for one of the SBA loan options detailed above.
Businesses with fewer than 50 employees may qualify for an exemption from the requirement to provide leave due to school closings or if childcare is unavailable, so long as they can show that the leave requirements would jeopardize the viability of the business. Unfortunately, further guidance on how you apply for the exemption and meet the standard has yet to be seen, and likely won’t be until after April 1st rolls around [*4.5.2020 update: As of today, still no known guidance on this front.] The Department of Labor does state that they will observe 30 days of non-enforcement once the new requirements take effect to allow employers who are acting reasonably and in good faith to get up to speed, so don’t panic if you’re reading this past the first of the month.
Obviously, this is a very condensed version of all you might want or need to know — there are limitations, exceptions, caveats, tax credits, loan terms, and other important information that we don’t have the space to cover here but which might nevertheless impact your situation. Before you resume despair, let me remind you that the point of this money is to keep the workers and owners of small businesses and non-profit organizations across America afloat. I encourage you to act accordingly, which is to say that I hope you proceed like this money is meant for you until a loan officer tells you otherwise.
If you have questions about the Paycheck Protection Program or the SBA 7(a) loans more broadly, reach out to your favorite local credit union or bank and they can keep you in the loop as they get up to speed. Lots of them are already approved SBA 7(a) lenders and more will be added to the list over the coming weeks. The SBA website is a pretty solid source for information on the EIDL Program and their other programs. There are also some great (and free!) webinars and publications floating around out there from law firms, banks, and other folks staying abreast of these moving targets, including helpful, detailed summaries of the SBA loan programs and other aspects of the CARES Act. Try running some searches and see what you get.
As you move toward applying for loans or benefits, watch out for scammers. You should never be charged a fee for accessing the SBA applications, for IRS forms, or for filing for benefits.
Good luck and god speed, doers and dreamers. Here’s to making it through, and to building a new — and more just — economy on the other side.