The sun once again set on the Paycheck Protection Program--the $669 billion forgivable loan scheme for besieged small businesses--and Congress is still fighting over a Phase 4 bill. You may be wondering about your other relief funding options.
Here are four programs still available for business owners in need of aid during the ongoing coronavirus pandemic.
Federal disaster loans
When Congress passed the Cares Act in March, it not only authorized the Paycheck Protection Program, which has helped more than five million businesses access more than $521 billion in grant and loan funding, it also boosted one of its long-standing business aid programs. The Small Business Administration was granted $360 billion to support low-interest loans made through the Economic Injury Disaster Loan, or EIDL, program and another $20 billion for grant funding. Those who applied for a loan at the outset, regardless of whether their application was accepted, could receive up to $10,000 in grant funding per applicant. That amount was later limited to $1,000 per employee up to a maximum of $10,000. The advance funding expired last month.
Available loans under the program also got a haircut over the period. Traditionally, eligible businesses can apply for EIDLs valued up to $2 million, but loans were capped at $150,000 each in May.
Despite the limitations, the loans are still a good deal. Not only do they offer a 3.75 percent interest rate and 30-year maturity, payments can be deferred for one year. And the money itself can be used for just about any business purpose, unlike the PPP, which requires that the majority of the proceeds go to support payroll costs like salaries and benefits expenses.
7(a) loan program
The PPP was largely modeled on the SBA's 7(a) program, the agency's flagship working capital loan program. While many of the Cares Act changes made to the 7(a) program ended with the PPP--such as eliminating the provision that says businesses must personally guarantee or provide collateral--at least one benefit remains: If you apply for, and close, an SBA loan before September 27, your first six months of payments will be forgiven entirely.
In a recent Inc. column, Ami Kassar, the founder and CEO of MultiFunding, a small-business loan adviser based in Ambler, Pennsylvania, points out that "a business will likely have to be performing OK in 2020, compared to the same time last year." He adds that since 7(a) program funds can be used more liberally than PPP loans, you can use the aforementioned six-month credit to refinance existing debt, buy out a partner, obtain working capital, or purchase your building.
It's worth noting that 7(a) loans have fees and higher interest rates--fixed rates are capped at 6 percent--than what the PPP provides. PPP loans have a 1 percent interest rate and a five-year maturity. Also, while lenders don't require collateral for loans up to $25,000, for amounts in excess of $350,000 the SBA traditionally requires the lender to collateralize the loan to the maximum value possible--and that may include requiring a person secure his or her loan with personal assets.
Main Street Lending Program
Last week, Fed chairman Jerome H. Powell announced that the central bank would extend through December 31 its crisis-era lending facilities, including the Main Street Lending Program, a low-interest loan offering aimed at companies with up to $5 billion in annual revenue or fewer than 15,000 employees. The program was scheduled to expire on September 30.
The loans come with a number of downsides--including limitations on executive compensation and a requirement that companies make "reasonable efforts" to retain their employees during the loan term. But the Fed has made several key improvements to Main Street loans since first introduced, which may make them more palatable for small businesses. The minimum loan amount dropped to $250,000, for instance, and the loan repayment term extended from four to five years. Interest rates are variable, and equal to Libor plus 300 basis points, currently about 3 percent.
The Fed program is expected to run directly through federally insured depository institutions, including banks, savings associations, and credit unions, and the Fed says it will support up to $600 billion in new loans. Business owners who have received PPP loans are permitted to apply, but any business that applies must demonstrate that it was in good order before the Covid-19 crisis.
Employee Retention Tax Credit
If you haven't received PPP loans and you either had to shut down or have suffered a significant loss in gross receipts as a result of the pandemic, you can still apply the Employee Retention Tax Credit (ERTC). The refundable tax credit is now equal to 50 percent of up to $10,000 in annual wages for each eligible employee. That includes the employer portion of health benefits.
Qualified wages differ depending on the company's average number of employees in 2019. For companies that averaged 100 or fewer employees in 2019, the wages of all employees count toward the credit, regardless of whether they are actively working. For companies that averaged more than 100 employees in 2019, only the wages of those who are getting paid but aren't actively working count toward the credit.
There is interest in changing the rules governing this program to potentially include companies that have already tapped the PPP. The Senate's Phase 4 bill, dubbed the Heals Act, would sweeten the refundable tax credit to 65 percent of up to $10,000 in wages in each quarter for up to three quarters, for a maximum of $30,000 annually. The proposal would also allow companies with 500 or fewer employees to apply the credit to their full workforce, regardless of whether employees are actively working.