COVID-19 and the associated closures have had a devastating impact on local businesses across America. Although a survey conducted by Finance Buzz shows Americans want to help small companies in their area, many families can't afford to do so as they are experiencing income reductions that are forcing spending cuts.
My family's own business is one of those affected by the coronavirus crisis. Although I'm lucky enough to be able to work from home, my husband has his own company that offers chiropractic care and massage therapy. In our state, he's currently allowed to see only emergency patients so he cannot continue business as usual.
We wanted to make sure his practice stays financially sound during this crisis, and that he can continue to pay the people who work for him, so we decided to take advantage of the coronavirus assistance from the Small Business Administration (SBA).
You may have heard both good and bad stories about how the SBA loan process has gone for people, and you may know people still waiting for their money. Here's how the process of getting an SBA coronavirus loan went for us.
How SBA funds will help our business
When our state put a lockdown order into effect, we knew right away it would have a major impact on my husband's business. He runs a busy office — on some days, 40 or 50 patients come in for chiropractic care, massage therapy, or both. Many people come in on a regular basis to stay healthy, rather than to deal with any particular medical problem, and these patients can't come in while the stay-at-home order is in effect. And it’s likely that many of his older patients will continue to stay away for a while even after restrictions are eased up due to a fear of continued spread of the virus.
Like most business owners, my husband faces ongoing costs associated with running his practice. He has a mortgage on his office building; a receptionist to pay; several massage therapists who work for him as employees; and utilities and malpractice insurance to pay. He also has inventory, mostly supplements and nutritional products, which could spoil because patients aren't coming in to buy it during the crisis. These costs don’t stop just because the business isn't earning money like it used to.
The programs created by the CARES Act aim to help business owners like my husband to deal with some of these expenses. For example, the Paycheck Protection Program (PPP) provides a loan that doesn't have to be paid back if at least 75% of the money is used to keep employees on the payroll over eight weeks. The rest of the money can be used for things such as rent and utilities.
This assistance will enable him to keep paying his staff members, even during times when they can't work, so they won't have to file for unemployment or look for another job. Because he can keep them on the payroll, they'll also be able to start working again right away when lockdown orders are lifted, which might not be the case if they found other work to get them through the pandemic.
We also won't have to worry about trying to work things out with creditors or dipping into savings to make the mortgage and utility payments. If you are running short on cash while you wait for assistance, many credit card companies are offering help to consumers, and you may find your banks or other lenders will as well.
Here's how we applied for help from the SBA
As soon as the lockdown order was announced for our state, we sprang into action to apply for the Paycheck Protection Program, as well as for an Economic Injury Disaster Loan grant.
The Paycheck Protection Program, as mentioned above, provides a forgivable loan as long as 75% of the money is used for payroll. The Economic Injury Disaster Loan grant is a grant of up to $10,000 that does not have to be repaid and can be used to cover payroll, paid leave, and other business expenses you can't pay due to COVID-19.
We applied for the Economic Injury Disaster Loan (EIDL) on April 1 and for the Paycheck Protection Program on April 6. The EIDL loan was easy to apply for at the SBA's website and required us to provide only a little bit of information on our business, including details about revenue and spending.
The Paycheck Protection Program was a more in-depth application and presented an added challenge: You must apply through a bank rather than the SBA. Our local bank was taking applications, though, which was a good thing as we found that some banks would accept applications only from customers who already had an existing relationship with them.
When completing the PPP application, we not only needed to provide details on payroll, but we also had to include payroll tax filings from April 2019 to March of 2020 as well as Payroll Tax Form 941. We had to reach out to the accountant who handles our payroll to request these items. Our accountant was overwhelmed with requests, even though it's a local accounting business just in our small town. My husband's practice does operate as an S-corporation, so the documentation required for sole proprietors or independent contractors who submit applications will be different.
Once we submitted all our PPP paperwork and the bank reviewed it, we also had to sign a promissory note committing to repay the money in case our loan is not forgiven if we don't comply with the SBA guidelines.
Securing funding from the SBA
Because we applied early on, we got our loan applications in for both the EIDL and the PPP before the programs ran short of funding — which both did, as you’ve likely heard about or experienced yourself. As a result, we received the money from the Economic Injury Disaster Loan grant on April 21 and the money from the Paycheck Protection Program on April 23.
The EIDL grant, however, did not provide as much money as we had expected. When the grant was publicized, it was touted as providing $10,000 in emergency aid for businesses. But in reality the SBA is offering grants of only up to $1,000 per employee. My husband has five employees, but one had started just two weeks before stay-at-home order, so the SBA evidently determined my husband had just four eligible employees and gave us only a $4,000 grant.
We got our money, but many businesses were shut out when both the disaster loan program and the Paycheck Protection Program ran out of funds because demand exceeded supply. Congress has since allocated more money to both programs, including another $310 billion for PPP Loans and another $60 billion for disaster loans. However, many are already warning that the funding is likely to run out again quickly. So if you want to secure an SBA coronavirus loan or grant under either program, you should apply as soon as possible.
You can contact the bank where you have your business account to see whether it can facilitate the submission of your PPP Loan application, and you should visit the SBA's Economic Injury Disaster Loan website to complete the application for the grant when they open it up again.
Complying with the rules
Because EIDL funds and PPP money can be used only for specific expenditures, we're being very careful to use the money as intended. The representative at the bank who helped my husband with his PPP application advised us that he should open a separate bank account just for the funds from the SBA. We did that and will be keeping a detailed log of how the money is used.
The PPP loan is also forgiven only after you apply for forgiveness, and it's not yet clear what that process will involve. If the loan isn't forgiven, it will have a 1% interest rate and mature after two years.
Bottom line: The SBA was there for us but it took time
Although it took nearly a month, the SBA provided financial relief for our small business. Thanks to their help, we can cover payroll costs for my husband's staff and keep the other bills paid as well. And we were fortunate the business had enough cash reserved to see us through until the money came through.
If you are a small business owner impacted by the coronavirus and you didn't get your application in before funding ran out the first time, make sure to apply ASAP. Not only will that enable you to get your money as soon as possible, despite the slow process, but it will also maximize the chances your application will be accepted before funding runs short again.