As the COVID-19 crisis rumbles on, small businesses are feeling the pinch on an epic scale. And bad news for small businesses means bad news for the millions of people that work for them. According to Gaebler, Minnesota is home to 464,946 small businesses employing 131,674 workers between them. If those small businesses don’t survive the crisis, that’s an extra 131,674 to add to the already diabolical unemployment figures. In recognition of the problem, a number of measures have been introduced on both a state and federal level to provide a cash injection to those businesses struggling to maintain their payroll. Here, we take a look at the three main ways of applying for a small business loan in Minnesota.
The Minnesota Small Business Emergency Loan Program
On a state level, Minnesota has introduced several measures to assist small entities impacted by the COVID-19 pandemic, including a new loan program to support with operating costs. As noted by Forbes, the Small Business Emergency Loan Program offers small businesses the opportunity to apply for a 0% interest, five-year loan of between $2,500 to $35,000. Partial loan forgiveness is possible under certain circumstances. The loan is available only to small businesses that operate in Minnesota. As per the Minnesota Department of Employment and Economic Development, applications should be filed with one of the following certified nonprofit lenders:
- African Development Center
- African Economic Development Solutions
- Cass County EDC
- Central Minnesota Development Company
- Community and Economic Development Associates
- Entrepreneur Fund
- Greater Bemidji
- Hmong American Partnership
- Initiative Foundation
- Latino Economic Development Center (LEDC)
- Leech Lake Financial Services
- Metropolitan Consortium of Community Developers
- Metropolitan Economic Development Association
- Neighborhood Development Center
- North Central Economic Development Association
- Northland Foundation
- Northwest Minnesota Foundation
- Southern Minnesota Initiative Foundation
- Southwest Initiative Foundation
- West Central Initiative
Paycheck Protection Program
Introduced as part of the CARES Act of March 27, the Paycheck Protection Program (PPP) offers support to small businesses struggling to meet expenses as a result of the pandemic. With a simplified application process free from the usual rigmaroles and with very favorable loan terms, the PPP could be a lifeline to those companies struggling to keep their heads above water. To apply for a PPP in Minnesota, start by checking your eligibility.
Eligibility Criteria for the PPP
To satisfy the eligibility requirements of the PPP, businesses will need to…
- … have been in operation since at least Jan 31, 2020
- … have fewer than 500 employees on the payroll
- … have greater than 500 employees on the payroll but qualify as a ‘small business’ under the SBA Size Standards
- … be a registered 501 Veteran organization
- … be an employee-owned cooperative
- … be a private non -profit
- ….be a tribal business
In addition to the above, the program is also open to sole proprietors, independent contractors, and self-employed persons.
PPP Loan Terms
As with all loans, the PPP comes with certain conditions, namely:
- Two-year loan terms
- No early payment fees or SBA fees
- A 1% fixed interest rate
- 6-month payment deferral
- Full forgiveness if at least 75% of the funds are used to maintain payroll with the remainder to be used against operating costs
Application Process for the PPP
Applications for the PPP should be made directly with an approved lender. An application form can be downloaded from the SBA website, completed, and submitted along with the business records to one of the following:
- An existing SBA 7(a) lender
- A federally insured depository institution
- A federally insured credit union
- A Farm Credit System institution
- The Economic Injury Disaster Loan
The Economic Injury Disaster Loan (EIDL) provides low-interest loans of up to $2 million to small companies that have been financially impacted by the COVID-19 crisis. Like the PPP, the funds are intended for use against only a limited number of purposes; namely, fixed debts, mortgage interest payments, utilities, and rent payments, wages and compensation, medical and retirement benefits, and severance pay.
Eligibility Criteria for the EIDL
As per the SBA, eligibility for the EIDL is based on the following:
- Entities must have 500 workers or less OR meet the criteria for small businesses outlined by the SBA Size Standards
- Be organized for profit
- Operate within the United States OR make a significant contribution to the U.S. economy
- Be independently owned and operated
- Not be dominant in its field on a national basis
- Registered 501 Veteran organizations, employee-owned cooperatives, private non -profits, tribal businesses, independent contractors and self-employed persons may also apply.
EIDL Loan Terms
Some of the chief terms of the EIDL to note include:
- No personal guarantee on loans of $200,000 or less
- Loan acceptance based on a credit check and review of business records
- The usual SBA requirement to demonstrate an inability to get credit elsewhere has been waived
- No collateral on loans of $25,000 or less
- Fixed interest rate of 3.75%
- 30-year loan term
- A forgivable advance of up to $1000 per covered employee up to a maximum of $10000
Application Process for the EIDL
Unlike the PPP where applications are made through to an approved lender, all applications for the EIDL should be made via the SBA website. Although the application is multi-part, it’s been simplified to take no more than around 2 hours 10 minutes to complete.
The first part of the application will ask you to confirm your eligibility and verify that all information you provide will be accurate and truthful to the best of your knowledge.
Step 2 will involve providing information relating to the business, its activities, and its number of employees. Be sure to have your income statement from Jan 31, 2020, to hand.
If another entity has at least a 20% stake in the business, step 3 of the application will ask you to declare the following in relation to the owner:
- Date of place
- Citizenship status
As the penultimate step in the process, you’ll be asked to confirm any criminal history or prior interactions with a federal department.
Just prior to submitting the application, you’ll be asked to confirm whether you’d like to receive up to $10000 of the loan as a forgivable advance. If you choose this option, you’ll be asked to verify the bank account you’d like the advance to be paid into. Once you submit the application, the SBA aims to come back to you with a decision as soon as possible; however, due to the high volume of applications currently in backlog, some delay should be expected.