Applications open Friday for federal coronavirus-relief loans. What you need to know
Most business owners can begin applying for forgivable, federally-backed coronavirus-relief loans on Friday.
Iowa Small Business Administration District Director Jayne Armstrong said the agency and the U.S. Department of Treasury finished writing the rules for the new program this week, which will allow business owners to begin submitting applications at www.sba.gov/funding-programs/loans/paycheck-protection-program-ppp.
As part of the $2 trillion stimulus package signed March 27 by President Donald Trump, the Paycheck Protection Program offers low-interest loans to businesses that have been affected by the coronavirus. The amount of money for each business depends on the size of its payroll before the pandemic.
If businesses retain employees or hire new ones, the federal government will forgive the entire debt. Overall, Congress set aside $349 billion for the loans.
"We don’t want [business owners] contacting the SBA today and the banks today," Armstrong said. "Let everyone put everything in place. They will start to launch on Friday."
While most businesses can start applying for the loans Friday, independent contractors and self-employed workers must wait until April 10.
Here is what you need to know about the program, and some other sources of help for small businesses trying to weather restrictions and shutdowns.
Who qualifies for the loans?
The standards for a loan under the Paycheck Protection Program depend on the industry.
The SBA defines businesses as small based on what they sell. A furniture wholesaler, for example, is only a small business if it employs 100 or fewer full-time workers. But other industries ranging from manufacturing to coal mining to greeting card publishing are technically small businesses if they have 1,500 or fewer employees.
For the new loan, Congress created a cap that is more lenient than the technical definitions. Any business with 500 or fewer employees — even the furniture wholesaler — qualifies.
At the same, the SBA follows its own guidance for industries with larger caps. A manufacturer with 1,500 employees also will qualify.
For a detailed list, consult the SBA's Table of Small Business Size Standards, published online at www.sba.gov/document/support--table-size-standards.
Some businesses also can apply for multiple loans. Among them are those in the hospitality and food industry, which can seek a separate loan for each location they operate. So can businesses listed in the SBA's Franchise Directory at https://www.sba.gov/document/support--sba-franchise-directory and businesses that receive funding from a designated Small Business Investment Company. They're listed at https://www.sba.gov/funding-programs/investment-capital.
Besides a traditional business, what else qualifies?
The loan also applies to nonprofits, military veterans organizations and businesses owned by Native American tribes.
In addition, it applies to sole proprietors and independent contractors. And religious organizations can receive the loans if they offer certain services, like homeless shelters or soup kitchens.
How much can a business get?
The loan amount depends on how much a business typically pays employees.
When applying for the loan, a business owner will provide a lender with documentation, showing how much the company spent on payroll for eight weeks before the coronavirus began to spread through Iowa. The lender will offer an amount equal to that eight-week payroll figure, with another 25% tacked on.
For example, if a business spent $300,000 on payroll over eight weeks, it could receive a loan equal to $375,000.
What are the terms of the loan?
The loans are designed to provide relief to businesses that have shuttered or slowed down as a result of the pandemic. Recipients will not have to make any payments for six months.
Banks and other lenders also will not require them to post collateral or make personal guarantees. The borrower will not have to pay processing fees, though the banks will receive payments from the federal government.
The loan must be paid back in two years at an interest rate of 0.5%. However, loans can be fully forgiven. They can also be forgiven in part, depending on how the business operates.
To be eligible for full forgiveness, a business must use the money within eight weeks of receiving it, allocating 75% to payroll and spending the remainder on mortgage interest, rent or utilities, says the SBA's online description of the program.
For loan forgiveness, business owners must have the same number of employees they did before the spread of COVID-19. They also must pay them at least the same amount.
Loans can be forgiven for businesses that have already laid off employees. Companies have until June 30 to re-staff and must pay the same level of wages as they did before Feb. 15.
The SBA will still forgive part of a loan for businesses that don't retain the same number of workers or spend as much on payroll.
What else is available?
Through the SBA, the federal government is offering other loans for small businesses, including:
Disaster Relief Loans. These forgivable loans are worth up to $2 million.
- Express Bridge Loan. Businesses apply for these loans, worth up to $25,000, through an SBA Express Bridge Loan Lender.
The Iowa Economic Development Authority closed applications for a small business grant program on Tuesday. But the state is still offering:
- Tax deferral. Businesses can apply to defer sales and withholding taxes for up to 60 days. They must have a physical location in Iowa and be able to prove business has been interrupted by the spread of the coronavirus.
- The Targeted Small Business Sole Operator Fund. The fund awards grants of up to $10,000 for certain businesses that have no employees. Through a nonprofit, the state is distributing the money on a first-come, first-served basis.
Private companies are also offering grants and other resources, including:
- Delta Dental, which is providing advance payments to Iowa dentists based on its normal payment of their claims. It also is offering $10,000 grants to Iowa nonprofits.
- Facebook, which is giving up to $100 million in cash grants and ad credits to small businesses.
- Verizon. The cellular provider is waiving late fees for small businesses and residential customers for 60 days.
- AT&T, which also is waiving fees for 60 days. In addition, it says it will not terminate services for residential or small business wireless, home phone or broadband customers unable to make payments due to coronavirus.
- Comcast. It's offering free Xfinity hotspots, unlimited data, no disconnections and no late fees for the next 60 days, and free "Internet essentials" for new customers.
- Yelp, which is offering free advertising for independently owned restaurants and nightlife businesses with fewer than five locations.
- Intuit Quickbooks, GoFundMe and Yelp. Each has contributed $500,000 to a Small Business Relief Initiative fund that will provide grants to small businesses.
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