Small businesses on Long Island are facing the twin challenges of surviving the coronavirus pandemic and navigating the government loan programs meant to help them.
The $2 trillion federal stimulus package, signed into law March 27, created Paycheck Protection Program loans to encourage employers with fewer than 500 employees not to issue pink slips. PPP loans come from banks, credit unions and other lenders approved by the U.S. Small Business Administration.
The stimulus package also established a forgivable loan advance or grant of up to $10,000 on SBA’s Economic Injury Disaster Loans, which are funded by the U.S. Department of Treasury.
Some business owners have found the process of applying for an EIDL or PPP loan confusing and frustrating. SBA replaced its EIDL online application portal last month after the personal information of about 100 applicants was exposed to other applicants. Loan officers at major banks are turning away some applicants for PPP loans.
The PPP is getting the most attention because it's new and may be forgivable, said John Mallano, deputy director of SBA’s New York district.
“PPP provides a direct incentive for small businesses to keep their workers on their payroll” during the pandemic, he said this week. “Up to eight weeks of eligible expenses for those businesses will be forgiven if they retain their employees and use at least 75% of the [loan] proceeds on payroll costs.”
For EIDL, SBA has simplified the application process in response to thousands of applicants, said Erica Chase-Gregory, director of the Small Business Development Center at Farmingdale State College, which is part of the SBA.
Businesses and private nonprofits harmed by the virus outbreak are eligible for EIDL and PPP, even if they received an EIDL loan after superstorm Sandy in 2012. “If you have an existing disaster loan you can still apply for another, but they cannot be consolidated,” Chase-Gregory said.
Robert J. Piechota, manager of SBA’s Hauppauge office, urged loan applicants to be patient with the agency as it confronts an historic number of applications. “If you don’t get any kind of response from SBA for over a week after you’ve applied [for EIDL], call the customer service line at 800-659-2955 to check in,” he said.
Here are answers to common questions about EIDL and PPP loans:
ECONOMIC INJURY DISASTER LOANS
Q: I applied for an EIDL before SBA introduced a "streamlined" application process in late March. Do I need to do anything more?
A: Yes, you need to reapply at covid19relief.sba.gov. SBA told all applicants to resubmit their information at the new application website, regardless if they submitted information previously or not.
Q: How long does it take to complete the online application?
A: Less than an hour.
Q: If I apply for an EIDL when will I get the money? It looks like it will be weeks or months away.
A: SBA is offering loan advances of up to $10,000; the advance is forgiveable just like a grant. You should request the advance when applying for an EIDL at covid19relief.sba.gov; the advance could be available within days. The entire loan amount, including the advance, is determined by the size of the business. The maximum loan amount is $2 million.
Q: Does SBA require proof of a business’ profitability for an EIDL?
A: You need to show the ability to pay the loan back. However, the underwriting is typically more lenient during times of disaster.
Q. What is the interest rate and term of the loan?
A. 3.75% for businesses and 2.75% for nonprofits. You have up to 30 years to pay off the loan, with payments deferred for the first year.
Q. Do I have to provide collateral?
A: Yes, in some cases. There is no collateral requirement for the first $25,000; above that amount you must pledge collateral. Personal guarantees are required for loans of more than $200,000. SBA will take a second position, if the collateral is already pledged against a previous debt.
Q: Are sole proprietorships and limited liability corporations eligible for an EIDL?
Q. What can I use the money for?
It can be used to cover working capital needs such as fixed debts, payroll, accounts payable and other bills that could have been paid had the pandemic not occurred. The funds cannot be used to replace lost sales or profit or to pay for an expansion project.
Q: If I already have a bank loan, can I still apply for an EIDL from SBA?
A: Yes, but the loans cannot be consolidated. If you have a disaster loan because of superstorm Sandy in 2012, payment on that has been deferred until January 2021.
Q: If I apply for an EIDL does that disqualify me from applying for a PPP loan?
A: No, you should apply for EIDL and PPP. If you are approved for both, you don't have to take both. If you decide to take an EIDL and a PPP loan, make sure not to double dip. For example, if you are awarded money from both EIDL and PPP for payroll expenses, take the funds for payroll from PPP.
PAYCHECK PROTECTION PROGRAM LOANS
Q: Where do I apply for a PPP loan: SBA or a bank?
A: PPP applications are being taken by banks, credit unions and other lenders that work with the SBA. The number of participating lenders is in flux. Ask your bank and if they’re not part of PPP, contact the Small Business Development Centers at Farmingdale State College and Stony Brook University for help in finding a lender.
Q: When will the money be available?
A: Lenders will issue loans between April 13 and June 30, though Congress has limited the total amount of PPP funding available. The maximum loan amount is $10 milllion.
Q: What can I use the money for?
A: To pay employee salaries, health insurance premiums and other payroll costs, mortgage interest, rent, utility bills, and interest on debt that existed before Feb. 15, 2020.
Q: I'm keeping my employees on the payroll. I understand the PPP will reimburse me if I keep paying them. I have money in the bank in my corporate and personal accounts. Will that disqualify me?
A: No, you are eligible to apply for a PPP loan.
Q: My business is considered essential and is open and operating. Can I apply for a PPP loan to cover payroll expenses?
A: You should not apply if you aren’t showing a loss due to the coronavirus pandemic. Loan decisions are made based on the financial records you submit. If you don’t show a need, the bank will deny you.
Q: What is the interest rate and term of the loan?
A. 1%, with a 2-year term. Payments are deferred for the first 6 months.
Q: Do I have to provide collateral?
A: There are no collateral requirements, personal guarantees, SBA fees or the "credit elsewhere test" — all of which apply for other types of bank loans.
Q: Is a PPP loan forgiveable?
A: Yes, in some cases. Up to eight weeks of eligible expenses will be forgiven if the business retains its work force and uses at least 75% of the PPP money on payroll costs.
Q: I'm having trouble filling out the loan application, where can I get help?
A: Here are some resources:
- The Small Business Development Centers at Farmingdale State College (firstname.lastname@example.org or leave a message at 934-420-2765 and a business adviser will respond) and Stony Brook University (email@example.com or leave a message at 631-632-9070)
- The Long Island chapter of the Service Corps of Retired Executives (longisland.score.org)
- La Fuerza Community Development Corp. in East Norwich (516-666-5071 or firstname.lastname@example.org)
- The Entrepreneurship Assistance Centers at Hofstra University (email@example.com or 516-463-4069) and Suffolk County Community College (EAPCenter@sunysuffolk.edu or 631-851-6214, and starting April 20 Spanish speakers can go to firstname.lastname@example.org or 631-851-6224)
- Information on EIDL is at sba.gov/disaster or 800-659-2955
- Information about PPP is at sba.gov/paycheckprotection
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