COVID-19 SBA Guidelines for Startups

We will go over the steps various governmental agencies have taken to provide relief to small businesses and startups across America as the COVID-19 pandemic .

Recent events following the COVID-19 global pandemic have led to hyper-bearish movements in the U.S markets that pose a serious hazard to the U.S economy. In addition, government-mandated lockdowns at the federal and state levels have closed many businesses deemed “non-essential” and have slowed traffic considerably for even some of the many businesses deemed “essential”. Many industries and economic sectors are hurting and are scrambling to find ways to stay afloat as it’s becoming apparent that a return to normalcy is further away than initially thought. 

We are in a time of grave uncertainty and we don’t know when things will go back to normal. Many companies are looking for new ways to prepare themselves for a disaster that no one could have expected. Luckily many governmental organizations are offering solutions to ease the troubles of small businesses and major companies alike. 

This will include responses from the Small Business Administration, from which we were fortunate enough to be able to interview a Public Affairs Specialist from the SBA’s LA District Office, as well as responses from the Treasury Department and the California Employee Development Department.

The federal government has declared a “disaster” and certain disaster initiatives have been set in motion. The Small Business Administration has been provided authority by the Coronavirus Preparedness and Response Supplemental Appropriations Act, recently signed by the President, an Economic Injury Disaster Loan declaration. The SBA is directing many of its efforts to focusing on helping businesses manage the health of their business during this disaster. 

Through this, the SBA will provide working capital loans of up to $2 million under the Economic Injury Disaster Loan program. These loans aim to provide businesses with much-needed liquidity to do things such as paying fixed debts, payroll, accounts payable and other such financial considerations. Interest rates for eligible small businesses are 3.75% and 2.75% for non-profit firms.

The SBA is providing these loans with generous long-term payment plans, some up to 30 years! After submitting an application, businesses can find out the decision on their loan application in as short as 3 weeks. The Economic Injury Disaster Loan is 100% processed by SBA.

A regular loan would normally be processed through a partner lending institution. In addition to that, all the other services that they usually offer are still available. For more information, please refer to the SBA coronavirus response page: https://www.sba.gov/disaster-assistance/coronavirus-covid-19 

We were able to interview Julia Giarmoleo, Public Affairs Specialist at the SBA LA District Office, for input on SBA advisory for small businesses and nonprofits enduring this COVID-19 crisis.

In a few simple steps, what do business owners need to do in order to access resources and financial support?

As long as they’re affected by COVID-19, they are eligible. Fill it out a loan application. If the loan is over 500,000 they ask for tax returns and other financial obligations paperwork. Download the application, Mail or fax in

What determines eligibility and what are the restrictions on such resources? Are startup founders included?

Eligibility is determined on a case by case basis, but at a baseline, they have to have been affected by COVID-19 and prove they’ve been affected with substantial economic injury. This can mean things such as the business being unable to meet its regular obligations or regular operating expenses. Under normal circumstances, a business has to be in a disaster area but right now that has been extended to the entirety of the United States. 

“Any small business or private nonprofit can apply for the loan if they’ve been affected” including startup founders!

How long do businesses have to take advantage of available resources?

The SBA has set a December 16th deadline that will be “fluid” meaning that if things are still in bad shape later this year and we are still in an emergency situation, the SBA is prepared to extend the filing deadline to a later date. Payments, which are already deferred for up to a year, will also be fluid and subject to later deadlines at the SBA’s discretion. Businesses that accept an SBA loan can appeal with the SBA if they need any deferments in relation to repayment. 

Where can a business go to get help in navigating the resource landscape?

The resource partner network including the small business development center, score mentors, women’s business center, veteran business outreach center is all, powerful resources. All free and prepared to meet and talk virtually to provide assistance and counseling to small businesses and nonprofits. People can call the district office which doesn’t typically handle this stuff but has stepped up in the wake of the COVID-19 emergency. As always Lender relations specialists at the SBA are available to help people go through applications and file them successfully. The SBA district office doesn’t process loan applications, that is done by the SBA office of disaster assistance. The district office does not have any role in the processing, approval, and disbursement of loan applications.

There is also a disaster customer service phone number and email that individuals can reach out to with any questions or concerns that they may have relating to business function amidst this COVID-19 disruption.

Special Stipulations and Important Considerations

For SBA disaster loans, applicants do not have to have a baseline credit to be eligible but they do need to have an acceptable credit history. Applicants do not have to submit tax returns for disaster loans under $500,000. 

All SBA loans under 25,000 do not need collateral and lack of collateral may not mean denial even for loans above $25,000, although collateral will have to be provided if the collateral is available.

If a business’ disaster loan application is denied, they can go to anyone of the SBA’s resource partners and work through why they may have been denied. There might be any sort of reasons for a business to be denied, such as making errors in filing or inadequately providing necessary documentation They can then fill out a new application with amendments or with any required documents they might have missed and submit an appeal. 

What are other non-SBA resources that small businesses should be aware of?

The state of California, counties, and cities are all making different resources available to anyone affected by the COVID-19 virus is highly encouraged to seek out such resources.

Fraud Awareness

The SBA is seeing a huge surge in fraud attempts where third parties will offer to fill out loan applications for small businesses in exchange for payment. The SBA does not encourage giving business to such solicitors and recommends seeking out the services of the SBA resource partner network if you need any help filling out a loan application. These organizations were established to help small businesses, whatever the need or concern may be. 

The SBA has already begun processing and approving applications for the EIDL so if you are a founder of a business that has been economically affected, you are highly encouraged to apply as soon as possible so that you may get relief. Here is the process for an application cycle which typically takes between 2-3 weeks but may be encumbered by the COVID-19 emergency:

APPLY FOR SBA LOANS

Businesses can apply for the disaster loan in person at the disaster center, online(although the online application is down as of March 26), or by mail! 

DECISION

The Small Business Administration will review the application and will look at things like credit and verification of your losses. A loan officer will work with the business to provide the necessary documentation for loan determination.  

DISBURSEMENT 

The SBA will send Loan Closing Documents that will outline the terms of the loan for the applicant to sign. Initial disbursement will happen sometime soon after the SBA has received the signed Loan Closing Documents. 

The Center for Disease Control has provided these guidance steps for businesses and employers at this time:

• Actively encourage sick employees to stay home and take measures to espouse healthy working conditions
• Create a flexible infectious disease outbreak response plan
• Follow business recovery best practices

The California Employee Development Department (EDD) is now providing support services and assistance following developments due to COVID-19. Businesses experiencing hardship can apply to the UI Workshare program. This program gives businesses looking to retain employees but finding it difficult because of declining activity to be able to partially offset said employee hours with Unemployment Insurance benefits. Eligible employees could have as much as 60 percent of their wages covered this way.

Investors are exercising caution in their investments at this time and have been risk-averse in their movements which has led to free-falls in the stock market. Venture funds and funding opportunities are looking incredibly uncertain going forward in 2020. Following recent record-breaking high fundraising round quarters, we are sure to witness some changes to the way VCs and investors behave. This upcoming quarter will lay the foundation for how the rest of the year might look like for the startup ecosystem.

Emerging startups looking for a fund to help them in their raising effort may find more difficulties for the time being. they will most likely have to consider also avenues such as grant money or loans. The tech community as a whole remains relatively insulated from these current developments but early-stage companies are particularly impacted. The world will yet be ready for the problems that these projects are looking to tackle and the technology that they will bring.

So to encourage investment and spending during these difficult and uncertain times, the Fed changed its lending rate to zero percent. Congress also approved a $1.5T injection into the stock exchange mid-March with the intention of providing much-needed liquidity to the bank system so that the system wouldn’t freeze and overnight lending would be able to function smoothly. 

Stimulus Package and CARE

In addition to that, the United States Congress approved a $2T stimulus package a few days ago designed to aid American households and businesses stay afloat while the nation weathers the impact of COVID-19. Provisions in the historic bill will include:

$370B in New Government-Backed Loans for Small Businesses 

Banks will be able to lend small businesses much needed money to function as economic activity declines. These loans will be backed by the SBA and offer businesses a great deal of flexibility, with some portions not being required to be paid back such amounts spent on employee payroll or rent/utilities expenses. Banks would be reimbursed these amounts by the Treasury Department so many of these loans might end up effectively functioning as grants.

The Paycheck Protection Program

A type of emergency loan for small businesses and nonprofits with less than 500 employees of up to $10M with a maximum interest rate of 4%. Collateral and personal guarantees will not be required to be eligible for the Paycheck Protection Program. A huge benefit of this program is that these loans could have some or all of it forgiven! Find out more about this program at: https://home.treasury.gov/system/files/136/PPP%20Borrower%20Information%20Fact%20Sheet.pdf

Business Tax Relaxing Under the CARES ACT

Small businesses will be able to receive employee retention tax credit if their business operation was fully or partially interrupted due to COVID-19 shutdown orders. They will also be able to postpone any payroll tax payments that are due and pay them over a period of two years instead. Businesses will also be able to increase the amount of business interest expense deductions that they claim!

Expanded Unemployment Benefits to Keep Employees

It varies from state to state, but unemployment benefits have been expanded to meet higher levels of income support in the hopes of covering gaps for individuals with decreased wages or lost wages. Unemployment will now also cover part-time workers and self-employed individuals such as freelance and gig workers. This will be a huge benefit to small business owners struggling to keep employees on payroll while their business experiences decreased economic activity. 

Payment Checks

With some stipulations, American taxpayers will receive checks of up to $1,200 with some people being eligible to receive an additional $500 for every child age 16 and under. To find out what some of the stipulations behind the stimulus checks are, please visit: https://www.irs.gov/newsroom/economic-impact-payments-what-you-need-to-know

Looking Forward

Things are rapidly developing and changing so it is very important for individuals and businesses to stay informed so that they can best prepare themselves for whatever may arise during this crisis. The new stimulus package will be going into effect and will most likely change the landscape businesses tread on, with important updates sure to be in store.

Later we have also interviewed Julia, here the video call:

[LIVE] SBA Guidelines for US Startups