Three Important Tips for CARES Act Loans and EIDLUntitled
Focus on PPP Loans under the CARES Act, not the EIDL Program.
As of April 9, 2020, the Small Business Administration (SBA) (which directly administers the Economic Injury Disaster Loan program (EIDL)) began informing new applicants that the program is now over-subscribed. This means that loans under the program will now be capped at $15,000 rather than the program’s max of $2 million unless Congress approves additional funds for the program beyond the current $10 billion, per U.S. Chamber of Commerce Letter to Congress, dated April 10, 2020.
As such, small businesses looking for money should focus their efforts on the Paycheck Protection Program (PPP) loans, rather than EIDL. However, the U.S. Chamber of Commerce and others have noted that this advice does little good for small businesses that have little or no payroll costs as the EIDL program provides funds that can be used primarily for non-payroll operating costs.
Be Careful About Accepting a Reduced PPP Loan.
Loans under the Paycheck Protection Program are meant to cover up to 2.5 months of payroll costs. However, there are reports per Neil Bradley at the U.S. Chamber of Commerce that some business owners are being offered less than the full 2.5 months of payroll costs, such as just 1.5 months worth of payroll costs. Since businesses can only receive one PPP loan, businesses should be careful about accepting a lesser amount. As such, businesses should consider finding a lender that will offer them the full amount they need.
Applying for PPP Loans: When? Where? How often?
With funding for the PPP loans limited and 90% of funds allocated as of Wednesday afternoon, April 15, 2020, small businesses should apply as soon as possible. It is important to get your application into the PPP “pipeline” quickly so you reserve your spot in line. As with the EIDL program, once the PPP becomes oversubscribed, the government and institutions may begin applying lower limits to individual PPP loans. Additionally, Congress continues to consider approving additional funds, so even if funds get fully allocated now there may still be a benefit to getting your application submitted quickly in case more funds become available.
If you’re wondering where to apply for a PPP loan, you should try your own business bank first (meaning the bank where you have your business bank accounts and/or credit cards and/or business loan, etc.) as they should have many of the records needed to close these loans efficiently.
If you do not have a bank account or your existing bank is not offering PPP loans or processing your application quickly, the SBA provides a lender match tool searchable by zip code. If you are looking for a new lender, anecdotal reports indicate that small community banks are often providing faster approval and funding on PPP loans.
And as noted above, you are only permitted to accept one loan under the PPP but if your existing lender or financial institution is not processing your application fast enough or offers you less than you need under the program, you can apply at additional lenders to see if you are offered better terms. But many experts recommend caution before submitting more than one application, as multiple applications to the government could trigger a fraud report. So if discussing a PPP loan with more than one lender, request a guarantee that the lender will not submit your file to the government before receiving your approval.
Be Thorough and Avoid Application Errors
There are a lot of resources available on the web with tips and guidance on how to timely and efficiently complete the PPP application. But the most important advice is to be organized, be patient and plan ahead. Your own lender will have their own specific set of documents they will likely require, but the Association of International Certified Public Accounts has compiled a list of essential business documents lenders should ask for and this can be a helpful guide for applicants of what to expect. Talk to your accountant, CPA, bookkeeper, or consult your payroll provider to collect these and be prepared to submit them to your lender.
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