Rhode Island may be slowly re-opening, but the months of lockdown have left many of the state’s small businesses in crisis. Fortunately, assistance is available – albeit for only a short time longer. Since March, businesses that satisfy certain eligibility requirements have been invited to apply for one of two loans created to tackle the financial repercussions of the crisis head-on. Administered and funded by the SBA, the Payroll Protection Program and the Economic Injury Disaster Loan provide emergency relief to businesses struggling to meet crucial expenditures. With loan forgiveness, low-interest rates, and generous loan terms on the cards, both loans are more than worthy of consideration. Both reserves and eligibility are limited, and with a cut-off point set for 30 June 2020, there’s only a short amount of time left for businesses to get their applications in. Here, we breakdown the process of how to apply for a small business loan in Rhode Island.
What is The Paycheck Protection Program?
The Paycheck Protection Program has been created as a direct response to the economic turbulence resulting from the COVID pandemic. Passed into law in March 2020, the program invites eligible entities to apply for a low-interest loan with some usually attractive features. Leaving the low-interest rate of 1% to one side, the most appealing aspect of the program for many applicants is the possibility of loan forgiveness. Providing certain criteria is met, businesses can appeal for the full principal and any accrued interest to be wiped from the slate. For forgiveness to be granted, borrowers will need to demonstrate:
- 1. At least 75% of the loan was used towards salary, paid company benefits (including holidays, childcare, medical and retirement pay), and other forms of compensation. The remainder of the loan is expected to be used against other crucial expenses such as utilities, mortgage interest payments, and rent.
- 2. The number of employees at the time of application remains constant for at least 8 weeks further to loan origination. If any employee leave’s during that time, they should be replaced (or at least, the employer should demonstrate that every effort has been made to do so).
Other terms to note include no requirement to show an inability to obtain credit elsewhere (as is usually required in the case of SBA-funded loans), no requirement to put up collateral or provide a personal guarantee, a two-year loan term with automatic payment deferral for the first 6 months (although note that interest will begin to apply from day one), and no early repayment penalties. Loans are capped at $10 million, with the maximum that can be requested determined by how much the company spends on wages, healthcare, retirement benefits, holiday pay, wages, and other forms of compensation. To calculate how much you can apply for, simply multiply your usual monthly expenditure by 2.5.
Who Can Apply for the Paycheck Protection Program?
As Rhode Island Commerce notes, the Payment Protection Program is open only to businesses that have been in operation since at least Jan 2020 and have been impacted as a result of the COVID-19 crisis. All businesses — including nonprofits, veterans’ organizations, sole proprietorships, self-employed individuals, and independent contractors – must either employ less than 500 employees or meet the SBA’s size standards. Additionally, all businesses and employees must be based in the US or contribute significantly to its economy.
How Can I Apply for the Paycheck Protection Program in Rhode Island?
The Paycheck Protection Program might be administered by the SBA, but all applications will need to be made via a local bank, credit union or other participating lender. A full list of approved lenders in Rhode Island can be found here. Once you’ve chosen your preferred lender, you’ll need to download and complete the Paycheck Protection Program Borrower Application Form from US Department of the Treasury’s website, and submit this, along with the following, to the lender:
- Articles of incorporation, EIN/TIN, or copies of your tax returns to show the date of launch, mailing address, and annual revenue.
- 2019 IRS Quarterly 940, 941 or 944 tax reports
- Payroll reports for last 12-months
- Confirmation of health insurance premiums paid across the business
- Details of all retirement plans funded by the business
Before you decide on any single lender, do your homework. Numerous businesses have reported lenders prioritizing larger loans over smaller requests, with the result that applications from entities with smaller payrolls are sometimes left to languish at the bottom of the pile – something that, given the limitation of monies and the ‘first come, first served’ approach to the program, is a situation most companies would prefer to avoid. Make inquiries with the lender about the volume of applications received versus the volume paid – if the former is substantially higher than the latter, you might want to find yourself another lender.
Additionally, be wary of any lender that reaches out to you proactively, and never provide any banking or confidential details to anyone prior to checking they’ve been approved to participate in the program.
The Economic Injury Disaster Loan
The Economic Injury Disaster Loan is another SBA-backed, low-interest loan intended to provide financial support to businesses who’ve taken a financial hit as a result of COVID. Interest is fixed at 3.75%, loans can be repaid over a 30-year period (depending on the company’s needs), and there’s the very appealing prospect of a fully forgivable advance of up to $10,000, paid directly to your bank account within just 3 days of loan approval. Loans are capped at $2 million and like the PPP, are designed specifically to support with crucial expenses and payroll. Currently, the EIDL is available only to businesses engaged in agriculture and which employ fewer than 500 workers.
If needed, you’re able to apply for both the EIDL and the PPP, but acceptance will be conditional on each being used for different purposes. Applications for the EIDL should be made directly through the SBA’s website.