Covid-19 pandemic has not only affected the public health but it also has severely hit the economy. It has impacted various sectors like tourism, production, service, trade, supply and health.  Small businesses have been hit the hardest as they face the challenge of declining staff and customers while implementing new social distancing and public health practices. The widespread closing of shops and businesses around the world due to the coronavirus is unparalleled. Shops, factories and many other businesses have closed by policy order, downward demand shifts, health concerns or other factors. Many of these closures may be permanent because of the inability of owners to pay ongoing expenses and survive the shutdown. The impact on small businesses around the world is likely to be critical.

According to the report of National Federation of Independent Business (NFIB) in early stages of the pandemic 92% of small businesses suffered negative effects and just 5% of small-business owners experienced no effects at all.

After Covid-19, the majority of small businesses have planned to seek loans to rebuild the business. When it comes to financially uplifting small businesses during crises such as Covid-19, there are various options to consider. The Small Businesses Administration (SBA) is one leading option for business loans. The SBA works with lenders to provide loans to small businesses. Normally, the agency does not give the loans directly to small business owners, except for the economic injury disaster loan (EIDL) that can be accessed by applying directly on the SBA’s website as a result of COVID-19.  SBA sets guidelines for loans made by its partnering lenders, community development institutions, banks and micro-lending institutions. The SBA lessens risk for lenders and makes it easier for them to access capital. One of their lending opportunities that became available due to the pandemic is in the form of a payroll protection program (PPP) and is a forgivable loan.

What is PPP loan?

The Paycheck Protection Program (PPP) is a loan designed to provide a direct incentive for small businesses to keep their workers on payroll. According to the Wikipedia, he Paycheck Protection Program (PPP) is a $953-billion business loan program established by the United States federal government in 2020 through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to help certain businesses, self-employed workers, sole proprietors, certain nonprofit organizations, and tribal businesses continue paying their workers. PPP loans have an interest rate of 1%. The loans that were issued prior to June 5, 2020, have a maturity of two years and the loans issued after June 5, 2020 have a maturity of five years. The loan payments will be deferred for borrowers who apply for loan forgiveness until SBA remits the borrower’s loan forgiveness amount to the lender. If a borrower does not apply for loan forgiveness, payments are deferred 10 months after the end of the covered period for the borrower’s loan forgiveness.

First Draw PPP loan

First Draw PPP loans can be used to help fund payroll costs, including benefits and may also be used to pay mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.  These loans are qualified to sell proprietors, independent contractors and self-employed people. Also, to any small business concern that meets SBA’s size standards and non-profit organization, veteran’s organization, or tribal business concern of the small business with the greater of 500 employees or that meets that SBA industry size standard if more than 500 and any business with NAICS code that begins with 72 that has more than one physical location and employs less than 500 per location.

Second Draw PPP loan

PPP has now allowed certain eligible borrowers that previously received a PPP loan to apply for a Second Draw PPP loan with the same general loan terms as their First Draw PPP. A borrower is generally eligible for a Second Draw PPP loan if the borrower has previously received a first draw PPP loan and will or has used the full amount only for authorized uses, has no more than 300 employees and can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.

PPP loan forgiveness

A borrower can apply for forgiveness once all loan proceeds for which borrower is requesting forgiveness have been used. Borrowers can apply for forgiveness any time up to the maturity date of the loan. If borrowers do not apply for forgiveness within 10 months after the last day of the covered period, then PPP loan payments are no longer deferred, and borrowers will begin making loan payments to their PPP lender.

1.     First Draw PPP Loan forgiveness terms

First draw PPP loans made to eligible borrowers qualify for full loan forgiveness if during the 8- to 24- week covered period following loan disbursement and i.e., Employee and compensation levels are maintained, the loan proceeds are spent on payroll costs and other eligible expenses and at least 60% of the proceeds are spent on payroll costs.

2.     Second Draw PPP Loan forgiveness terms

Second Draw PPP loans made to eligible borrowers qualify for full loan forgiveness if during the 8-to-24-week covered period following loan disbursement i.e., Employee and compensation levels are maintained in the same manner as required for the First draw PP loan, the loan proceeds are spent on payroll costs and other eligible expenses and at least 60% of the proceeds are spent on payroll costs.

To apply for loan forgiveness:

1.     Contact your PPP lender and complete the correct form

2.     Compile your documentation

3.     Submit the forgiveness form and documentation to your PPP lender

4.     Continue to communicate with your lender throughout the process

Why loans weren’t approved to some people

Unsatisfactory credit history, business activity not eligible (EIDL assistance is available only to small businesses engaged in an eligible business activity. Business activity means the nature of the business conducted by the applicant), Not eligible due to delinquent child support payments, economic injury is not substantiated, agricultural enterprises are not eligible, not eligible due to character reasons, unverifiable information, applicant requests a withdrawal or fails to proceed are some of the major reasons why loans aren’t accepted. If your loan wasn’t approved then you may need to connect with the financial institution directly or reach out to a business consulting companieswho are familiar with the SBA programs.

Many lenders accepted applications from bank and non-bank customers and prioritized submitting them for approval based on their own internal guidelines, not necessarily on a first come- first serve basis. Applications that were already submitted, will be processed in the order in which they were received. New applications will not be accepted until program funding is restored. All PPP lenders have delegated Authority, which means they and not SBA are making the decisions if the applicant qualifies for funding. The applicant will have to contact the lender. SBA does not have the ability to check the status of PPP applications. Lenders have the sole responsibility under the delegated authority to notify applicants of their status.

When will you get your money?

The PPP process takes approximately 10 days to complete. The EIDL Loan process takes a minimum of 21 days to complete. However, the completed timeframe is on a case-by-case basis. If your money does not arrive till 10 days, the lender either did not send in the application or it was submitted late and didn’t make it in our system before SBA had to stop accepting new applications due to exhausted program funds. The applicant will have to contact the lender for loan status.

Do you need to reapply for the EIDL/EIDL advance?

If your application confirmation number begins with a “3” you do not need to reapply. The loan portal will be reopened when funding is restored.

A small business can apply for an EIDL loan and later elect not to “close” or accept that loan. If they requested and received an EIDL Advance (by checking the request box within the EIDL loan application), that amount did not need to be repaid. There would only be a balance due if they accepted the full amount of the EIDL loan.

The Covid-19 has affected businesses across the world, but it has definitely been more challenging for small businesses who do not have the same resources as larger ones. There are various options for small businesses to rebuild; one of the best options is to take a loan from SBA. SBA has come out with Covid-19 specific relief loan schemes Economic Injury Disaster Loan (EIDL), Paycheck Protection Program (PPP), Restaurant Revitalization Fund, SBA debt relief among others. The small businesses are encouraged to take advantage of the relief loan packages to recover from the impending loss. Furthermore, it is advised to check through all the required checklists for the intended loans for easy and smooth loan processing and approval.