COVID-19 Loan Programs for Small Businesses

April 9, 2020
Nichole M. Baer

The COVID-19 pandemic has created a challenging situation for small businesses across the Commonwealth and the United States, including closed courts. Most, if not all, businesses in Pennsylvania are struggling, but there are COVID-19 loan programs out there that can help with cash flow and payroll expenses. This post is a summary of some of the loan programs currently available.

SBA Economic Injury Disaster Loan (EIDL)

The SBA EIDL loan provides up to $2 million in loan assistance with a 3.75% rate for small businesses and a 2.75% rate for non-profits. The SBA decides the terms on a case by case basis and will consider the borrower’s ability to pay in determining the term and amount to be loaned. 

The EIDL loan repayment term may be up to 30 years. No payments are due for a year on this loan.  

EIDL is a working capital loan, and the SBA will take real estate as collateral when it’s available. Any loan over $25,000 will require collateral, but the SBA will not decline a loan for lack of collateral. Instead, it will require the borrower to pledge what collateral is available. SBA will take a lien on inventory and business equipment. The SBA will also take a junior position to other lenders.

There are no costs to apply, but there are costs associated with the documents required to secure the loan.  

SCORE is offering a daily webinar on the EIDL program at Noon Eastern Time.  

SBA Economic Injury Loan Emergency Advance

Small businesses may apply for an advance of up to $10,000 with the Economic Injury Loan Emergency Advance. The advance is available within days following a successful SBA application (the application asks for direct deposit information).

The SBA does not require recipients to repay this advance.  

The loan advance is part of the Economic Injury Disaster program mentioned above and is available even if you do not receive that loan. 

SBA Paycheck Protection Program  

The Paycheck Protection Program (“PPP”) provides loan funds to small businesses to increase employee payroll retention during the COVID-19 pandemic. Several entities may be eligible under this program if they meet certain program requirements, including:

  • small businesses under 500 employees
  • private non-profit organizations, and 
  • 501(c)(19) veterans’ organizations 

To apply for the PPP, an employer must seek out an existing SBA 7(a) lender. Please be aware that not all banks who are SBA 7(a) lenders are offering this loan, so it may take some work to find one.   

The PPP will be available through June 30, 2020. The SBA will even forgive 100% of the PPP if an entity uses the funds for 

  • payroll costs (salary, bonuses, vacation time, group healthcare, insurance premiums, retirement benefits, state and local taxes, etc.) 
  • interest on mortgages
  • rent, and 
  • utilities 

However, due to interest in the program, applicants must use at least 75% of the forgiven amount for payroll. You also must maintain the same employee headcounts and salary levels. The SBA will reduce the forgiveness you are allowed if full-time headcounts decline and/or the salaries and wages paid to employees decrease.  

The SBA will defer your loan payments for six months, but interest will continue to accrue. The PPP will not require employers to give collateral. The government and the lenders will not be able to charge any fees related to this loan. The maturity on the PPP is two years, and the interest rate is 1%.  

To apply, at minimum, a small business will need: 

  1. the average monthly payroll
  2. the number of jobs
  3. the purpose of the loan 
  4. applicant information (EIN/SSN, address, owner name, etc.)
  5. the operating agreements/organizational documents
  6. payroll documentation (As each lender will require different documentation, we recommend pulling everything for the past year in preparation of what the lender will ask for), and 
  7. information on the business and each owner that owns more than 20% of the company

Applications open on April 3, 2020, for small businesses and April 10, 2020, for independent contractors.  

SBA Express Bridge Loans  

Small businesses that already have relationships with an SBA Express Lender may apply for access to loan funds up to $25,000. 

Said funds have a fast turn around and can be used as a term loan or a bridge loan while waiting for an SBA Economic Injury Disaster Loan to fund.  

SBA Debt Relief

During the COVID-19 pandemic, the SBA will automatically pay the principal, interest, and fees of all current SBA 7(a), 504, or micro-loans. It will make these payments for the next six months. 

Additionally, the SBA will pay for the principal, interest, and fees of any new SBA 7(a), 504, or micro-loans that were issued before September 27, 2020.  

PIDA COVID-19 Working Capital Access Program (“CWCA”)  

As of March 31, 2020, the Pennsylvania Department of Community and Economic Development (“DCED”) is no longer accepting applications for the CWCA loan. 

Presently, the DCED does not expect to re-open this loan program. If it does, this blog post will be updated.

PIDA’s Small Business First Fund established this program to help businesses through the pandemic. It authorized up to $61 million in loan funds to borrowers. Every small business (with less than 100 employees worldwide) was eligible for working capital loans up to $100,000.00. PIDA would take a junior position to other lenders, and the only collateral would be for personal property and/or fixtures. Interest rates were 0% for small businesses and 2% for agricultural producers with a 3-year repayment term. No payment was due the first year of the term. 

If you need assistance figuring out which of these loan programs may be best for you, we are here and ready to help.   

Nichole Baer is an attorney at Russell, Krafft & Gruber, LLP, in Lancaster, Pennsylvania.  She received her law degree from Stetson University, College of Law and practices in several areas including Business, Commercial Real Estate, Estate Planning, and Estate Administration.