The Coronavirus Aid Relief and Economic Security Act, signed March 27 by President Trump, contains $2 trillion worth of aid to Americans, including some $500 billion in loans and grants to help small businesses cope with the disruptions caused by COVID-19.
The new programs are being administered here by the Colorado district office of the Small Business Administration, and the state’s small business development centers are hubs for information to help businesses find resources that can help them through the current crisis.
The legislation requires the SBA to roll out these new programs within 15 days of its passage.
While some programs are already in place, others may take a bit longer to be fully implemented, said Aikta Marcoulier, executive director of the Pikes Peak SBDC.
Details are still being worked out, and instructions and updates are coming daily, she said.
“This is all really new,” Marcoulier said. “The fact that this even passed is unprecedented. It literally covers every type of small business, including the gig economy. They’re taking into account the changes in our workforce demographics and not just sticking with the old school.”
Furthermore, this is the first time a federal relief package has included grants as well as loans.
“It’s unprecedented that we’ve seen the SBA come through with a grant option so quickly,” said Cecilia Harry, chief economic development officer for the Colorado Springs Chamber & EDC.
The Business Journal asked business leaders to outline the basics of the three loan and grant programs that are available for small businesses through the CARES Act, and what these programs could mean for local businesses.
LOANS AND GRANTS
The CARES Act included enhancements to the SBA’s economic injury disaster loan program to provide a quick infusion of cash to cover business needs right now.
Businesses and nonprofits that apply for these loans, or grants, as the SBA is calling them, will get an emergency advance of up to $10,000 within three days of applying.
According to the SBA, the advance does not need to be repaid, and may be used to keep employees on the payroll, pay for sick leave, meet increased production costs due to supply chain disruptions or pay business obligations, including debts, rent and mortgage payments.
The EIDLs are low-interest loans of up to $2 million that are available to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses.
Businesses with 500 or fewer employees, including sole proprietorships, independent contractors and cooperatives and employee-owned businesses, are eligible for these loans, as well as most nonprofits of any size.
“Industry by industry, the employee numbers change,” Marcoulier said. “There might be higher thresholds for some industries. It’s based on NAICS [North American Industry Classification System] codes. So if you don’t think you are eligible because you’re a larger company, you should go and check for sure.”
The application portal for these loans is open, she said. Applications can be found through a link on the SBDC website, pikespeakSBDC.org. The new portal is called EIDL Advanced.
People who had already applied for an EIDL earlier in the COVID-19 crisis need to reapply to get the cash advance, Marcoulier said, “but it’s an easy, one-page application. You use your existing account number from your original application.”
DEBT RELIEF PROGRAM
This program will provide immediate relief to small businesses that already have nondisaster SBA loans, in particular, 7(a), 504 and microloans.
These small businesses can have their loan payments, including principal, interest and fees, forgiven for up to six months if the funds are used for working capital, Marcoulier said. Disaster loans are not eligible for the debt relief program.
The program will be available to new borrowers who take out 7(a), 504 and microloans within six months of the date of the president’s signing the bill into law.
The 7(a) loans provide up to $5 million for businesses that lack credit elsewhere and need access to versatile financing. They can be used for short- or long-term working capital to purchase an existing business, refinance debt or purchase fixtures and supplies. There are a number of different types of 7(a) loans.
The 504 loans provide up to $5.5 million to acquire fixed assets for expansion or modernization, such as the purchase of real estate, buildings or machinery.
Microloans of up to $50,000 help small businesses and some nonprofit child care centers to start up and expand.
These loans differ in eligibility requirements and what the money can be used for, so it’s important for businesses to work with a financial expert or the SBDC to find the right loan for their individual situations, Marcoulier said.
PAYCHECK PROTECTION PROGRAM
This program will provide cash-flow assistance through federally guaranteed loans to employers who maintain their payroll during this emergency.
The purpose, according to the SBA, is to help workers keep their jobs and to enable small businesses and the economy to recover after the COVID-19 crisis.
The program offers forgiveness of up to eight weeks of payroll based on employee retention and salary levels, no SBA fees and at six months to one year of payment deferrals.
These loans will be available through June 30. Small businesses and other eligible entities will be able to apply if they were harmed by COVID-19 between Feb. 15 and June 30.
Besides small businesses, some nonprofits, sole proprietors, independent contractors and other self-employed individuals are eligible to apply.
Maximum loan size is $10 million, and loan size will be calculated according to average monthly payroll costs.
Costs that may be included in payroll are compensation; vacation, parental, family, medical or sick leave pay; separation costs; payment for group health care and retirement benefits; and state or local taxes assessed on employee pay.
Employee or owner compensation above $100,000 is excluded, along with some other specific costs.
These loans can be used for mortgage interest, rent, utilities and interest on other debts in addition to payroll costs.
The amount of the forgiveness is calculated by a formula based on payroll costs during the current eight-week period compared with the previous year or time period.
Businesses can apply for both PPP loans and other SBA financial assistance but can’t use the PPP loan for the same purpose as any other SBA loan they receive.
The SBA is working to develop the application process for these loans, and lenders are receiving guidelines about them this week, Marcoulier said.
She expects more details about the program to be available by April 5.
MAKING THE RIGHT DECISIONS
Putting in an application for an EIDL advance loan is a good idea, Marcoulier said.
“You get the money and you don’t have to accept the loan,” she said. “You only have to accept what you actually need. If you decide another route makes more sense, such as the PPP, you can do that — but at least you have the cash advance you can use toward working capital.”
What’s most important for businesses to know about any of these programs is that stringent documentation is a must. That’s something Marcoulier learned when she worked on community development block grants after the Waldo Canyon and Black Forest wildfires and subsequent floods.
“We’re saying, ‘Keep every piece of documentation, every receipt for what you’ve paid for everything. If you bought staples, keep the receipt. Payroll, taxes — make sure your bookkeeper and you are keeping really good records from the point when they [approve] your business, because at some point you’re going to have to show that you used this loan for the right purpose,’” she said.
Marcoulier said the legislation provided funds for SBA partners, including the small business development centers, to help small businesses navigate the resources that are available through the CARES Act.
“I have 12 extra people giving volunteer hours now, and they’re putting in a lot of time,” she said. “This will help us fund the extra support we need to deploy into the community and help people get these applications and grant requests into play.”
It’s also important for businesses to be careful about applying for other types of loans or lines of credit, raising money through crowdfunding, making a decision to shut down, or anything that lessens their unmet need.
“That can make you ineligible for other grants or federal programs, or it may decrease the amount you can apply for,” Marcoulier said. “You should have a good understanding of where you’re at right now and what you need to do. If you’re unsure, we’re asking everyone to sign up for consulting with us.”
BUSINESSES HELPING BUSINESSES
The stimulus package is “one very important piece in a puzzle of tools and resources that are going to help us as a business community tackle recovery as quickly and efficiently as possible,” Harry said.
Along with the Pikes Peak SBDC, the chamber will be helping local businesses navigate the complex array of resources, Harry said.
Two other general sources of funds for small businesses are the Colorado COVID Relief Fund, a state program for loans and grants, and local loan and grant packages.
“El Pomar [Foundation] has a million-dollar fund that is available to nonprofits,” chamber President and CEO Dirk Draper said. “A second one is through Pikes Peak Community Foundation; their emergency relief fund is available to individuals and nonprofits. And a third one is Survive & Thrive COS, a loan program that’s designed to be immediately-available funding to help with very short-term liquidity.”
Launched by tech startup accelerator Exponential Impact and the Pikes Peak Community Foundation, Survive & Thrive will make loans up to $25,000 to local small businesses hurt by COVID-19, including restaurants, salons and retail stores.
Local businesses are facing a couple of challenges in accessing the loans and grants, Draper said.
“One is just because of the speed with which the pandemic came on,” he said. “In the quick turnaround of lending agencies to set up disaster funds, those systems in some cases are immediately swamped with applications or requests for information that slow down response time.
“The second challenge is understanding which programs would fit and how they work together. … Things are changing rapidly in some cases.”
Good first steps are for businesses to talk with their lenders and to seek help from the SBDC, Draper said.
Those steps need to be taken quickly because some programs “tend to be first come, first serve funding, so the sooner that companies can get their applications in, the better their chances of getting funded.”
Some companies, however, may be reluctant to take on additional debt.
“Before the disruption, many of our businesses already had the right balance of equity and loan situations in their existing capital stack,” Harry said. “And so not only do they have to evaluate what resources are available to them right now, but what available resources fit into their capital stack and what they can manage in the short term with all this uncertainty, and what they think they can manage in the long term as well. And the uncertainty of the length and depth of this disruption is making that really hard for a lot of businesses to do right now.”
One of the bright spots in the current crisis is businesses helping other businesses, Draper said.
“I know of at least one law firm, Lewis Roca Rothgerber Christie, offering legal support [via free webinars and articles] to businesses, helping them navigate programs,” Draper said. “I know of a couple of accounting firms, Biggs Kofford and Stockman Kast Ryan + Co., that are offering free seminars for business owners and managers. Employers Council is offering free webinars and classes on aspects of managing employees.”
The chamber has posted additional information about resources and businesses helping businesses at cscedc.com/covid-19.