April 3, 2020

SBA’s Paycheck Protection Program Kicks Off: What That Means for Small Businesses and Non-Profits

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Today marks the official launch of the Small Business Administration’s (SBA) Paycheck Protection Program (PPP), with lenders beginning to process applications. As small businesses and non-profits struggle to make ends meet in this unpredictable and unprecedented time, the PPP and related coronavirus relief programs available through the SBA offer a lifeline in the form of forgivable loans that can be used for direct operating expenses, forestalling layoffs and keeping businesses solvent. 

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), H.R.748, makes available approximately $350 billion in liquidity to qualifying small businesses and non-profits through four separate initiatives. The bulk of the funds will be available through the PPP, for which the CARES Act authorized up to $349 billion in forgivable loans. In addition, the SBA will be providing Economic Injury Disaster Loans (EIDL). EIDL applicants can also request a forgivable advance of up to $10,000 that the administration is hoping will reach applicants in as little as three days. Further coronavirus relief funds are available through the SBA Express Bridge Loan Pilot Program. Finally, the SBA has been authorized to engage in substantial debt relief by automatically paying the principal, interest, and fees of qualifying loans for a period of six months, and will do the same for all qualifying loans issued prior to September 27, 2020.

Paycheck Protection Program

Forgivable loans are available through the PPP to any small businesses and 501(c)(3) non-profits with fewer than 500 employees. The forgivable funds can be used for payroll costs, interest on mortgages, rent, and utility payments, although SBA guidelines recommend that at least 75% of the forgiven amount be used on payroll due to high demand for this loan program. Furthermore, these funds must be used for operating expenses in the eight weeks following the loan’s origination in order to be eligible for forgiveness.

Loan payments will be deferred for six months, and as the goal of the program is to continue small business employment, forgiveness will be reduced if the organization’s full-time headcount or salary and wages decrease. Any amount not forgiven will be repaid over a 2 year maturity period at 1% APR. Loan applications will be processed through any existing SBA 7(a) lender as well as participating federally insured deposit corporations, federally insured credit unions, and Farm Credit System institutions. PPP program funds are available until June 30th, 2020, although they are not anticipated to last that long.

Economic Injury Disaster Loans

Small businesses and non-profits are also eligible for the Economic Injury Disaster Loan (EIDL) program, a low interest loan of up to $2 million dollars. These loans will be repaid after a 6-month forgiveness period, at a rate of 3.75% interest for small businesses and 2.75% interest for non-profits.

Businesses may apply for both the PPP and EIDL programs, but they are not allowed to use the funds for the same purpose or duplicative amounts, preventing double dipping. When applying for an EID Loan, organizations may request an emergency advance loan of up to $10,000. This money does not have to be repaid and is intended to reach small businesses and non-profits within three days of them filing their EIDL application. 

SBA Express Bridge Loans

For organizations that need more than $10,000 to cover short-term costs while they wait for their EIDL application to be approved, the SBA has made available funds from the Express Bridge Loan Pilot Program. Through this program, small businesses with an existing relationship with an SBA Express Lender can receive an additional $25,000 in the form of a bridging loan. This loan will be repaid out of the funds made available when their EIDL application is approved.

SBA Debt Relief 

Finally, the SBA is working to help small businesses through the current crisis with a six month period of debt relief on all current 7(a) loans, 504 loans, and microloans, as well as debt relief on any loans issued prior to September 27, 2020. The SBA will provide this debt relief by automatically paying the principal, interest, and fees of qualifying SBA loans. 

Together, the funds and debt relief available to small businesses and non-profits can help keep critical enterprises afloat until economic circumstances improve. While this is a crucial step in protecting small businesses and non-profits impacted by the coronavirus, nonprofits in particular will need more support. Enterprise urges Congress to include additional, flexible funds in the Phase 4 coronavirus package, including supplemental appropriations for the HOME Investment Partnerships Program, the Section 4 Capacity Building Program, and the Community Development Financial Institutions Fund.
 

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