Congress enacted a number of relief programs to help businesses and their employees financially survive the pandemic. Along with the programs has come a great deal of guidance, some of which has been more confusing than helpful. Giuseppe Salamone of VaroTeam outlines what’s available and how to secure relief funds.
2020 was a tumultuous year for everyone. The economic disruption caused by Covid-19 and the need to quarantine and socially distance continue to weigh heavily on small business in 2021. A large number of relief programs are still available, and it’s expected more will come as part of the Biden administration’s Covid-19 relief package.
While these paths to economic relief will provide vital support, the amount of information circulating on the internet can often seem intimidating and down right overwhelming. That’s why we’ve condensed it down to the essential things for small businesses to know in 2021.
What relief packages are available for small business?
New round of Payment Protection Program PPP (forgivable) loans
Small businesses can now apply for a second draw PPP (forgivable) loan, if you’ve already received a “first draw” and will or have used the full amount for authorized uses. You must have been operating before Feb. 15, 2020, and have no more than 300 employees.
A new requirement to qualify for round two is you must demonstrate your gross receipts have declined by 25% or more between comparable quarters in 2019 and 2020.
The amount you’ll receive will continue to depend on your average monthly payroll costs, which are multiplied by 2.5—or 3.5 if you’re in the hospitality and food industry. Remember, payroll costs include compensation to employees whose principal residence is the U.S. in the form of salary, wages, commissions, cash tips, vacation pay, allowance for dismissal, and employer payments for insurance premiums (group healthcare, group life, disability, vision, or dental insurance) and retirement.
What about forgiveness?
To qualify for forgiveness, you must have maintained employee and compensation levels during the eight or 24-week covered period. The loan proceeds must have been spent on payroll costs and other eligible expenses with at least 60% of the proceeds spent on payroll costs.
Good bookkeeping is always important, but will be especially important for getting your loan forgiven. You’ll need to keep track of eligible expenses and their accompanying documentation over the covered period. Your lender and the SBA have the right to request and audit your business’s financial documents and records.
Here are a couple of documents you should maintain to apply for forgiveness:
1. Documents verifying the number of full-time equivalent employees on payroll and their pay rates for the periods used to verify you met the staffing and pay requirements.2. Documents verifying your eligible interest, rent, and utility payments (canceled checks, payment receipts, account statements).
Economic Injury Disaster Loan (EIDL)
The EIDL loan is administered by the U.S. Small Business Administration (SBA) and is designed to provide economic relief to small businesses and nonprofits in the U.S. who have faced a loss of revenue due to Covid-19. The loan has a 30-year term and a very low fixed interest rate of 3.75% for businesses and 2.75% for non-profits (fixed). Proceeds can be used for working capital and normal operating expenses, including rent, utilities, or health care benefits.
SBA Express Bridge Loans
The Express Bridge Loan Pilot Program is available to small businesses who currently have a relationship with an SBA Express Lender, and provides quick access to up to $25,000. This cash injection can be vital for small businesses who are dealing with Covid-19-induced loss of revenue and can be used for expenses while applying for the EIDL loan. The loan must be repaid in full or in part by proceeds from the EIDL loan.
Shuttered Venue Operators Grant
The SBA is now preparing to offer the Shuttered Venue Operators (SVO) Grant program, which includes $15 billion in grants to shuttered venues. Two billion dollars of these grants are reserved for eligible applicants with up to 50 full-time employees so small businesses don’t have to worry about being left out. Eligible applicants may qualify for SVO Grants equal to 45% of their gross earned revenue, with a maximum amount for a single grant of $10 million.
In order to apply you must have been in operation as of Feb. 29, 2020, and must not have applied for or received a PPP loan on or after Dec. 27, 2020.
Eligible entities include:
Live venue operators or promoters Theatrical producers Live performing arts organization operators Relevant museum operators, zoos, and aquariums who meet specific criteria Motion picture theater operators Talent representatives Each business entity owned by an eligible entity that also meets the eligibility requirementsApplications aren’t open yet—but if you’re eligible, you should keep an eye out to make sure you don’t miss out. The applications of those businesses who have suffered the most severe economic hit (over 70-90% revenue loss after April 2020) will be prioritized in the first 28 days of grant awards.
How can I secure relief funds?
What many small businesses have learned is you have to act fast when applying for grants and loans or you risk missing out on vital economic support. You need to be prepared to apply the first day a new grant or loan becomes available if you want to maximize your chances.
This means having your finances in order throughout the year because incomplete or inaccurate records won’t be acceptable for any relief application. If you are unsure of how to keep your books updated or lack the time to do so, talk to a professional who can help you take on the task.
It’s also a good idea to connect with potential lenders—or even a lending officer. By inquiring about when your local bank or lending institution might participate in the next round of PPP loans, you can lock-in some potential sources and build a relationship with one of their officers.
Lastly—keep a keen eye out. Joe Biden’s economic rescue package is set to include considerable support for small businesses, including $15 billion to create a new grant program for small business owners which will be in addition to the existing PPP program. So, it’ll pay to frequently check back on what’s being announced, so you can be ready once applications open.
The pandemic isn’t over yet—and that means the same for its impact on business, but you don’t have to face it alone. It is those small businesses that commit to keeping good financial records who will be first in line for newly available relief funds.