By Veda Collmer, Esq., ArizOTA Legislative Committee member
Congress has just approved another $321 billion to replenish the Paycheck Protection Program and the Economic Injury Disaster Loans (EIDL) programs. These loans are designed to help small business owners (with 500 or fewer employees) remain operational and retain employees. The CARES Act authorized $349 billion for disaster loans and the funds were exhausted in two weeks. It is expected the additional money will go even faster.
If you are considering applying for these loans, now is the time to do your research, gather your supporting documents, and contact your lender. Once the President signs the law, banks will begin accepting applications again.
There are two types of loans available for small businesses who are struggling due to the COVID-19 pandemic. The Paycheck Protection Program (PPP) and the Economic Injury Disaster Loans (EIDL). Below are relevant details about each loan and links to other resources.
***Note: You do not have to figure this out alone. The Maricopa Small Business Development Center can provide counseling about the PPP Loans and the EIDL loans. Call them or schedule an appointment with them here.
The PPP provides loans for small businesses—meaning 500 employees or fewer—to help those businesses retain employees:
- Borrowers can request 2.5% of the average total monthly payroll costs (up to $10 million). The Arizona Commerce Authority has a free loan calculator on its website to help you calculate your requested loan amount;
- To be eligible, the business must have been operational with employees as of February 15, 2020;
- The PPP will forgive up to eight weeks of compensation for payroll costs, mortgage interest, and utilities. The eight-week clock begins ticking when the first installment of the money is dispersed. The Arizona Commerce Authority has a free forgiveness calculator on its website;
- Borrowers must apply for forgiveness at the end of the eight weeks;
- Unforgiven amounts convert into a loan with a two-year maturity period with a 1% interest rate;
- Borrowers must apply for a PPP loan with an approved lender, which is a bank or credit union. For a list of approved lenders in your area, go to the SBA website for an updated list of approved PPP lenders by state. You will be more successful using your own lender or bank to submit your application, if your lender is an approved PPP lender.
The Arizona Commerce Authority has more resources about the PPP loans, linked here, including a sample loan application here. They also offer these informative webinars about the PPP loan program. And check out these tips on applying for a PPP loan.
Alternatively, EIDLs are loans for small businesses to help keep the business running. Borrowers are eligible for EIDL funds if they suffered substantial economic injury as a result of the COVID-19 pandemic:
- Borrowers can request up to $2 million.
- Businesses must prove they were operational as of January 21, 2020.
- Businesses must use these funds for operational costs (which can include payroll); but cannot use them to grow the business or make up for lost profits.
- Borrowers can defer EIDL payments for one year and repay at a 3.75% interest rate.
- Borrowers apply for EIDLs directly with their local Small Business Development Center (SBDC). The Maricopa SBDC website is located here.
- The loan is not forgivable beyond the initial $10,000; however, if the practice owner uses a portion of the funds for payroll costs, he or she can refinance the loan as a PPP.
The Maricopa SBDC has numerous resources about the EIDL on its website, here. Their informative webinar about the EIDL is located here. They can provide your small business with counseling about the loans and the application process.