As of April 2020, the full economic impacts of the novel coronavirus (COVID-19) are still unknown. Millions of Americans have filed for unemployment compensation, and non-essential businesses have been forced to close. In the process, small business owners have been left wondering how to meet debt and payroll obligations while revenues continue to decline.
Partially in response to these pressures, the federal government has passed a series of bills to promote wide-ranging economic stimulus. In addition to direct cash payments to American households and an expansion of Unemployment Insurance, the stimulus offers greater access to emergency financing to small businesses. Perhaps indicating the severity of the current economic situation, early reports have revealed that the expanded financing available to small businesses has been overwhelmed with applications.
According the Small Business Administration (SBA), the CARES Act passed on March 27, 2020, makes $376 billon available to American workers and small businesses. In addition to the SBA’s traditional funding sources, the act establishes four critical categories of temporary funding. As communities across North Carolina grapple with how to best aide their small employers, this post seeks to highlight new and existing financing programs available from the SBA.
Paycheck Protection Program
Approved under the CARES Act in March, the Paycheck Protection Program provides access to emergency debt funds so that employers can meet payroll obligations and keep their workforce employed. Though structured as a loan, awarded funds will be forgiven if a business keeps its employees on its payroll for eight weeks. Funds can be used for payroll, rent, mortgage interest, and utility obligations.
Applications can be made directly to existing SBA financial institutions or federally insured depository institutions or credit unions. Applications will be accepted through June 30, 2020.
EIDL Loan Advance
Available to all businesses and non-profit organizations with less than 500 employees, the Economic Injury Disaster Loan (EIDL) Emergency Advance provides up $10,000 of economic relief. Any small business that has experienced declines in revenue can qualify for these funds. As with the paycheck program above, these funds will not have to be repaid. For local economic development professionals, it is important that small businesses be made aware of this opportunity. These funds can help support the fixed expenses of small businesses while revenue streams are not available.
Applications for the EIDL fund can be made here.
SBA Express Bridge Loans
The Express Bridge Loan program allows businesses that already have banking relationships with SBA lenders to quickly access up to $25,000 in emergency financing. These funds must be repaid, and any awarded EIDL funds will be applied to the outstanding debt. The purpose of this program is to provide relief quickly, bridging any delay during the EIDL processing time. Business owners should reach out to their financial institutions to determine eligibility.
SBA Debt Relief
For a period of six months, the SBA will pay the principal, interest, and fees of all agency issued financing. This includes the 504 loan program discussed below and will apply to newly issued loans through September 2020. For any new business that utilizes SBA financing, this mechanism would essentially cover all costs associated with six months of debt payments. This program applies automatically and does not require an application.
504 Loan Program
A tool for community and economic development, the 504 Loan Program can be leveraged with private or other public financing mechanism to promote business development. Though the current economic situation may not be conducive to new private development, it is a reminder of the critical role public institutions can play in fostering and safeguarding economic growth. 504 funds can contribute up to 40% of a project’s total development costs and can be used for the purchase of new buildings, land acquisition, new construction or renovation, machinery, or refinancing. The program is administered by SBA community partners, known as Community Development Companies (CDC), and more information can be found through the SBA’s North Carolina District Office.
Matthew Hutton is a dual Master’s degree candidate in the Master of Public Administration and the Master of City & Regional Planning programs at UNC-Chapel Hill. He is also a Community Revitalization Fellow with the Development Finance Initiative.