The COVID-19 crisis continues to rumble on. In the week ending April 11 alone, over 100,000 workers in Colorado filed their first week of unemployment, a number equal to the total number of applicants over the whole of last year. And it’s not just individuals who’re suffering. Small businesses in Colorado have been hit hard by the economic turmoil: bad news for the businesses, and bad news for the people they employ. In response to the situation, the government has introduced several measures designed to help small businesses and other qualifying entities overcome the challenges of a temporary loss in revenue. As of March 27, business owners who meet certain eligibility criteria are able to apply for financial assistance through two small business loans – the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) – both of which will be administered by the Small Business Administration (SBA).
As CBS notes, the goal of the program is to provide immediate cash flow to businesses without requiring them to jump through the usual bureaucratic hoops that apply to most small business loans. Crucially, the loans can be forgiven if they’re used to retain employees that would otherwise be made jobless.
As noted by Josh Bivens and Heidi Shierholz of the Economic Policy Institute, “The aid starts as loans, but if the money is used to preserve jobs and maintain wages of employees over the crisis, then the loans can be forgiven — potentially keeping tens of millions of small business employees on the payroll”. As the terms, amounts, and intended purposes vary by loan, it’s important to check which program will be most suitable for your needs before beginning the application process.
The Economic Injury Disaster Loan (EIDL)
For small businesses struggling to meet their financial obligations and cover operating costs as a result of the disaster, the Economic Injury Disaster Loan (EIDL) could be a lifeline. Available in loan sizes up to a maximum of $2 million and with terms of 10 years and an interest rate of 3.75% for businesses and 2.75% for non-profits, an EIDL is available to the following entities:
- Small businesses with 500 or fewer employees. Businesses with more than 500 employees may still qualify if they are considered small under SBA Size Standards.
- Individuals operating under a sole proprietorship.
- Independent contractors.
- A cooperative with fewer than 500 employees.
- A tribal small business concern with fewer than 500 employees.
How to Apply for an Economic Injury Disaster Loan in Colorado
Regardless of state, applications and payments are all administered centrally by the SBA. To benefit from the program, you will need to file an application on the SBA website.
Step 1 – Pass the Eligibility Check
The application form will outline the qualifying guidelines for size, business type, and activities. Confirm your business meets the requirements before proceeding to the next step.
Step 2 – Confirm Information
In addition to providing the legal and trading name of the company, you’ll need to verify SSN or EIN number, gross revenue for the year Feb 1, 2019- Jan 31, 2020, and the number of employees.
Step 3 – Verify Ownership
If the business is owned by another entity, they’ll need to provide a signed loan guarantee along with any other relevant information requested.
Step 4 – Declare Criminal History
If you are aware of any criminal history or federal interactions that could be deemed relevant to your application, you will be asked to confirm it. If anyone has assisted in the completion of your loan application, you will also be asked to verify their information.
Before you submit the application, you will be asked whether you would like to take a $10,000 advance on the loan. Essentially, the advance is a grant; while the rest of the loan will need to be paid back, this doesn’t. Payable within three working days of your application being accepted, it provides a much-needed cash injection to those most in need of immediate support.
The Paycheck Protection Program (PPP)
Like the Economic Injury Disaster Loan, the Paycheck Protection Program (PPP) is designed to provide immediate relief to small businesses adversely affected by the disaster. Aimed primarily to cover payroll costs, the loan can be used for:
- Covering wages, commissions, and other compensation forms
- Payable vacation, parental, family, and medical benefits
- Severance pay
- Retirement benefits
- Rent, mortgage payments, and utilities
- Loans can be drawn up to a maximum of $10 million, and are available to small businesses:
- Who experince financial difficulties as a consequence of COVID-19.
- With fewer than 500 employees
- Who employee more than 500 employees but who qualify as a small business as defined by the SBA Size Standards.
- The loan is also open to sole proprietors, independent contractors or the self-employed, private non-profit organizations and veteran organizations.
How to Apply for the Paycheck Protection Program in Colorado
Unlike the Economic Injury Disaster Loan, the Paycheck Protection Program is administered by the SBA but issued by:
- A bank that is already an SBA approved lender
- A federally insured credit union
- A federally insured depository institution
- A Farm Credit System institution
To apply, begin by gathering all the necessary documents that will be requested. This includes:
- Monthly payroll information
- Tax records
- Confirmation of monthly rent and utilities
- Health care benefits costs
- Next, calculate how much you need to apply for (divide your eligible costs by 12, then multiply by 2.5).
Applications will need to be made via an approved lender (a full list of participating lenders in Colorado can be found at sba.gov), but it’s recommended you complete and accompany your application with the PPP specific application form provided by the SBA.
Given the high uptake in PPP by Colorado based small business owners (The Denver Channel reports that 28,469 PPP loans have already been approved in the state for a total of $5,830,781,842) applications are currently backlogged. However, it’s recommended businesses continue to file their applications as soon as the need is identified to avoid any further delays in processing.