When can I apply for a loan?
- April 3rd for small businesses and sole proprietorships
- April 10th for independent contractors and self-employed
We recommend that you apply on April 3rd. If you can’t apply on Friday, try over the weekend or next week at the latest (see “Could the money run out?” below).
Where do I apply?
Many banks, credit unions, and other SBA-approved financial institutions will participate in the program. Some may initially just work with their current banking customers and then expand to others, whereas some may accept anyone. The Treasury threw a curve ball in the program on March 31st by dramatically lower the interest rate to 1% from 4%, which may dampen some banks enthusiasm to work with anyone other than their current customers. Exploring your existing banking relationship may be a logical step for many.
In addition to traditional financial institutions, there are online SBA lenders who are building portal sites for processing PPP applications. But as of 4/3/20, none of those are live yet.
The key in our opinion is a lender who can get the loan done very quickly as the terms of the loans for everybody doing CARES ACT SBA 7(a) loans is the same.
What can I do to be ready for April 3rd or April 10th?
1. Make sure you understand the program. The U.S. Treasury has issued plenty of documents related to the PPP on their Assistance for Small Business page. The Overview, Borrower Information, Borrower Application Form, and Paycheck Protection Program – Interim Final Rule documents are great resources for borrowers looking for information.
Another disaster relief option is Economic Injury Disaster Loans (“EIDL”). Unlike CARES Act/PPP loans, which are facilitated through financial institutions, EIDL loans are done directly through the SBA. You can read about EIDL loans on the SBA website. We can’t tell you which program is better for your business, but we can say over 95% of the inquires we get at SbaLenders.com currently relate to the CARES Act loans as these loans may be forgivable whereas EIDL loans are not.
2. Have your documents ready
What documents do I need to apply?
Most likely some or all of the following:
1. SBA Borrower PPP Form. Required for all CARES Act SBA 7(a) PPP loans regardless of financial institution. Please read and complete prior to Friday.
2. Payroll returns. The primary motivation of the CARES Act SBA loans was for employee retention. You will likely be asked for documentation from payroll tax returns filed to federal (e.g., Form 941 and/or 944) and/or state governments to verify the average payroll costs for purposes of determining your maximum loan amount.
3. Calculation of number of FTEs and payroll cost. There are pre- and post-loan calculations of payroll costs and total number of employees (FTEs) used to determine how much of your loan is forgiven. Initial payroll costs and FTE calculation are based on 2019 for non-seasonal businesses, 2/15/19 to 6/30/19 for seasonal businesses, and 1/1/20 – 2/29/20 for new businesses.
4. Calculation showing reductions to payroll cost. Salaries above $100,000 (annualized) for any employee are excluded. So, if you had two employees with salaries of $80,000 and $120,000, the CARES Act calculation would be $180,000 in total salaries. In addition, non-U.S. residents compensation is excluded, as well.
5. After the loan closes, you will need to provide documentation for not only payroll costs but also rent, leases, mortgage interest, and utility bills. Some may request that information now.
6. Corporate and personal identification documents. Articles of Incorporation, Bylaws, Operating Agreement, and Driver’s Licenses for all owners of 20% of more of the business.
7. Wire or ACH instructions on where to send the loan proceeds at funding.
What are the key loan terms?
- Interest rate of 1%
- Maturity in 2 years
- No collateral or personal guarantees
- No payment for six months and no fees paid by borrower
- All or a portion of the loan may be forgiven based on payroll and other fixed expenses during the 8 weeks after loan issuance
Could the money through this program run out?
Congress allocated $349 billion for this program. In theory the money could run out as it is done on a first come, first serve basis. Don’t want to scare anyone by any means but do think speed is critical. We can tell you the average requested CARES Act loan over the past week on SbaLenders.com is $200,000. If there are 30 million small businesses and only half of those want loans, that is $3 trillion dollars. Maybe those numbers are off, but regardless $349B doesn’t sound like much spread over 30 million potential applicants.
If the money does run out, there is always the possibility that Congress increases the limit. However, that would literally take an act of Congress and no businessperson wants to rely on Congress to get back in business.
Besides pay 1% interest, are their other fees paid by the borrower?
No, by statute a lender can not charge you fees to process your loan.
Do independent contractors count as employees for purposes of PPP loan calculations?
No, independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation.
Is SbaLenders.com part of the Small Business Administration and how do you make money?
We are not part of the SBA. We are a small business that introduces borrowers to SBA approved banks. We list hundreds of SBA-approved lenders along with recent SBA loan activity to help inform. We don’t provide funding ourselves. We are simply an information source for borrowers and a referral source for banks.
We have agreement with banks where they pay us a fee for business we refer to them. We do not charge you as the borrower. Also note that the law mandates that banks do not charge fees on CARES Act SBA loans (sometimes they do charge borrowers fees on traditional SBA loans).
Can I also apply for a traditional 7(a) loan in additional a Cares Act PPP loan?
Other popular sources of SBA loan data: