CARES Act Creates Faster Loans for Small Businesses
By Jondi Gumz
“CARES Act Speeds Up Small Business Loans” Updates information in this article. Click Here to read.
David Purgason and Tallula Preston, founders of Fruition Brewing.
Tallula Preston and David Purgason, owners of the startup Fruition Brewing in Watsonville, are hoping to receive a U.S. Small Business Administration disaster loan to keep their shuttered enterprise afloat in the coronavirus era.
Here is their experience: “We filled out the application on March 18. The website was way slow loading each page. It took about a half day to fill out and get everything uploaded. We received a submission confirmation email, followed by a status change update email saying ‘received—in review.’”
Small business owners in Santa Cruz County, across California and throughout the nation — their doors closed, their sales shrunken due to orders to shelter in place — are eager to learn more about what the federal government is offering.
Right now, it’s loans of $5,000 to $2 million at 3.75 percent interest for for-profit businesses or 2.75 percent for private non-profit organizations to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the COVID-19 outbreak impact. The deadline to apply for an Economic Injury Disaster Loan is Dec. 16.
Grants?
Three U.S. senators question whether the disaster loans will save small businesses that have laid off employees and are weighing whether to close.
On March 20, Senators Chris Van Hollen (D-Md.), Chris Murphy (D-Conn.), and Jeff Merkley (D-Ore.), proposed the Main Street Emergency Grant Program to allow small businesses to apply for grants through the Treasury Department to cover fixed costs like payroll and rent, paying the money back only if the business owner fails to restore payroll to 80% of prior levels within 12 months after the COVID-19 crisis ends.
Van Hollen also called for at least $550 million for the Community Development Financial Institutions Fund — a source for the Santa Cruz Community Credit Union — in the COVID-19 stimulus package.
On March 23, Rep. Jimmy Panetta (D-Carmel Valley) co-introduced The Too Small To Fail Act, which would provide at least $350 million for zero-interest “Economic Injury Disaster Loans” for small businesses and nonprofits affected by the coronavirus outbreak.
The bill also would provide grants of up to $15,000 to the small business or nonprofit within three days after the disaster loan application is filed. Also, the bill would empower the Small Business Administration to defer payments on existing federal loans and waive a requirement that limits SBA loans to businesses that do not have access to credit elsewhere.
While Congressional leaders were debating what to do, the Santa Cruz Small Business Development Center at Cabrillo College put on a free webinar March 19 with SBA officials explaining how to apply — online — and what to expect — a response in two to three weeks.
The webinar was fully subscribed at 88 people, some of whom had already closed their doors and others who had laid off employees. At least 92 more got on the wait list and got access to a replay.
Surge Expected
Heather Luzzi, director of the Sacramento SBA, which oversees 22 counties, said hundreds of employees had been brought on to deal with the “surge” of applications and she expected “a strain on resources.”
She added, “This is unprecedented.”
The SBA loan application process has been used many times after a disaster, whether drought, flood, or fire. But it hasn’t been used for an economic disaster that is ongoing, for which there is no end in sight.
The online forms require the employer identification number and ask questions that may require a check of the Secretary of State’s website or a consult with an attorney or accountant. If the business owner misinterprets what the SBA wants, then the application will be rejected, and the process must start over.
For example, one question is the amount of the economic loss, hard to answer since it’s unknown when closed businesses might reopen.
SBDC advisor Sunita Maharaj recommended putting down three months of operating income and with an “e” after the number to denote “estimate.”
Documents
Other questions ask about debt, liabilities and salaries. Ancillary forms are required, such as Form 413, the personal financial statement of the business owner, and Form 4506-T, authorizing the SBA to order a transcript of the tax return, must be completed. A credit report will be reviewed; there isn’t a minimum credit score.
The SBA will be more lenient with people who have been unable to repay debt but some may be disqualified.
A default on a federal loan means no federal disaster loan.
Loans under $25,000 do not require collateral; larger loans do.
Due to the nature of the coronavirus pandemic, almost all businesses will likely be considered, according to SBDC advisor John Connelly.
Small business owners (which means under 500 employees) were advised to call the local SBDC to get free assistance walking through the form to fill it out correctly.
The employees at those offices are working but callers sometimes get voice mail.
Luzzi said business owners don’t have the option of calling another SBDC elsewhere, they must use their local SBDC office.
Asked about startups, she said they would likely not qualify since the process asks about past income, but that an expansion of en existing business to a new location might qualify.
Cannabis businesses are not eligible because of the federal law categorizing marijuana as a dangerous drug. However, sole proprietors are eligible. And Lyft and Uber drivers and AirBNB rentals with past income may be eligible.
First in, first out
The application process is first in, first out, and Luzzi suggested owners get their application in as soon as possible. There is no prioritizing by the number of years in business, for example, or for businesses forced to close by the state.
Asked about nonprofits, Luzzi said they can apply but they are not eligible for the personalized assistance from an SBDC advisor, whose goal is to help for-profit businesses but they can get help from an SBA staffer.
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Applicants may apply online, receive additional disaster assistance information and download applications at https://disasterloan.sba.gov/ela. Applicants may call SBA’s Customer Service Center at (800) 659-2955 or email [email protected] for more information.
Completed applications can be mailed to U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155.
To reach the Small Business Development Center at Cabrillo College, call 831-479-6136 or go to www.santacruzsbdc.org.