The recent COVID-19 pandemic has taken the small business sector by storm, causing many to temporarily shut their doors, lay off employees and think creatively to keep their business afloat during these trying times. When things return to some semblance of normalcy, many of those same businesses will be waiting for the opportunity to rebuild. In the meantime, how can a small business maintain its payroll or keep providing their services?
The federal government recently enacted two pieces of legislation to help small businesses weather the COVID-19 crisis, including the CARES (Coronavirus Aid, Relief and Economic Security) Act, which provided $349 billion in Small Business Administration (SBA) loans in the first wave of legislation.
This week a second piece of legislation was approved by Congress to add an additional $320 billion in new funding for the Paycheck Protection Program (PPP), which quickly ran out of funds in the first wave. The goal of the government is to get these loans into the hands of small business owners as quickly as possible in order to keep them going and be able to continue paying their employees. This includes a set-aside for underserved businesses like ones run by minorities and rural businesses.
The banking industry is ready to handle the needs of its customers as they take advantage of the federal stimulus package. “Banks in our state are already very familiar with helping customers access SBA funding,” said David Nast, president and CEO of Progress Bank and Trust. “Nearly 94 percent of banks headquartered in Alabama are SBA-approved lenders, and that number could easily grow higher over the next few weeks as new banks are approved to help fill the need.”
Small businesses with fewer than 500 employees will be allowed to apply for a low-interest Paycheck Protection loan of up to 2.5 times their average monthly payroll costs to cover expenses related to payroll, health insurance, retirement contributions, covered leave, rent, utilities and interest on debt payments. Independent contractors do not factor into this calculation as they can apply for their own PPP loans. All 50 states have been declared disaster areas, so no matter where your company is based, you may apply.
Once the loan is secured, you must track your expenses for eight weeks. After that time, you have to return to the lender and document them. If the expenses are accepted, then the portion of the loan used for the expenses becomes a grant and that debt is forgiven. “If you have to lay off employees during those eight weeks, the forgiveness amount may be reduced by the percentage of employee loss,” Nast explains. “The SBA is also waiving the requirement to secure the loan with real estate or a personal guaranty and a review of personal financial documents.” This loan has a maturity of two years, an interest rate of 0.5% and there are no repayment obligations for at least six months.
“No Alabama bank has closed its doors during this crisis,” Nast said. “Even banks that have changed their lobby hours are still meeting customer needs through drive-thru or online options or by appointment.”
Nast advises individuals and small businesses to call their banker as soon as possible. “While every bank and customer is unique, bankers can provide access to multiple helpful options, whether it’s applying for an SBA loan or modifying an existing agreement,” he suggests. “Since the last round of funding went so quickly, if this is a loan you need, be ready to apply immediately.”
Progress Bank has seven locations across Alabama. Visit myprogressbank.com for more information.