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SBA rolling out significant financial assistance with EIDL and PPP

April 02, 2020

Vermont Business Magazine, 4/1/2020 - The Small Business Administration is rolling out two financing programs to help small businesses. The Paycheck Protection Program and the Economic Injury Disaster Loans (EIDL). The EIDL is already available for businesses and includes an immediate grant of $10,000 that is available to all businesses, including sole proprietors, in as soon as three days after applying. For the Paycheck Protection Program (PP), some businesses will be able to apply as early as the end of this week. They would contact any existing SBA participating lender first to see if they are going to be participating in this program.

The lenders do not yet have detailed information and instructions to guide them, although some of the information coming out can give them a good idea. The Vermont SBA office said they are hoping the detailed information they will need will be coming out within a day or two.

The EIDL is a direct loan from SBA available now and you apply at www.sba.gov/disaster. Visit SBA.gov/Coronavirus for more information on the Paycheck Protection Program.

Some of the specific PPP parameters in terms of how it will work have been explained. The purpose of the loan is to provide an incentive for small businesses to keep their workers on the payroll. The loan amount will be based on 2.5 months of a business’s payroll. SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. It will be available through June 30.

The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months.

The amount of the forgiveness will be based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease. After the forgiveness, if a balance remains it will be termed out for the remainder of a 2 year period at an interest rate of .5%. No collateral or personal guarantees are required.

Q&A with Darcy Carter, SBA District Director, Vermont District Office

U.S. Small Business Administration

Q: My understanding is that small biz should apply for the PPP and they have to do that through a local lender and there is also has the forgiveness factor if you meet the conditions.

Carter: The business can apply to not just banks and credit unions for the PPP loan but many other types of lenders will also be able to apply to make PPP loans. In addition, VEDA and our microlenders will be able to as they participate with SBA already on other programs. The lenders are waiting for the implementing rules from SBA to come out so they know how to process the loans. It is a completely new loan program. We expect these rules by later this week.

The EIDL may or may not have a forgiveness factor but assume it does not.

The EIDL is a direct loan from SBA available now and you apply at www.sba.gov/disaster. As part of the application for an EIDL, it will ask you if you want to request an advance of up to $10,000 (available as soon as three days after filing). What we have seen so far in the congressional guide is that this advance will be forgiven or a grant. You have to apply for the EIDL loan in order to access the advance.

But still prepare the documentation. It looks similar to a residential mortgage, so a pretty good rate. EIDL rate is 3.75% fixed for up to 30 years, up to $2 million for small businesses and 2.75% for nonprofits. SBA Office of Disaster Assistance will determine your loan amount. The aim is to provide about 6 months of operating expenses. Most loans up to $200,000 will not require a guarantee.

To read the full interview please click here.