The COVID pandemic may have led to an astronomical leap in unemployment in the US, but the effects on the nation’s small businesses have been no less devastating. Hundreds of thousands of small businesses have already been lost to the crisis, with thousands more likely to go the same way over the coming months. In South Dakota, the picture’s no different from anywhere else. In an effort to provide financial relief to struggling companies, the government has invested several billion dollars into two SBA-backed loans – the Payment Protection Program and the Economic Injury Disaster Loan. Designed to support with operating costs and payroll, the loans come with business-friendly terms, no fees, and the possibility of full or partial forgiveness. Each program is governed by strict eligibility criteria, but for those businesses and non-profits that qualify, they could be a lifeline. Here’s what you need to know about how to apply for a small business loan in South Dakota.
Paycheck Protection Program
The Paycheck Protection Program (PPP) is a low-interest loan created with the specific intent of incentivizing small businesses to avoid lay-offs and maintain their workforce. Loan terms are favorable (expect a low-interest rate of just 1%, no obligation to provide collateral or a personal guarantee, automatic payment deferral for the first 6 months, 2-year terms, and zero fees) but unquestionably the chief attraction is the possibility of applying for full loan forgiveness (to include both principal and interest) providing certain conditions are met. To qualify for loan forgiveness, you’ll need to demonstrate that at least 75% of the loan has been put towards payroll (this includes gross wages, health insurance, retirement plans, and other benefits, and Social Security and Medicare) with the reminder to be used against other crucial operating expenses such as mortgage interest payments (note that it’s not possible to use the funds towards the principle of the mortgage), utilities, business rent, and other fixed debts.
Loan forgiveness is also conditional on there being no substantial changes to the existing headcount – if an employee leaves of their own volition, it won’t be held against you but you will need to show that every effort has been made to replace them. The maximum amount of loan that can be requested is $10 million. To calculate how much your business can expect, multiply the average monthly spend on payroll between Feb 15, 2019, and Jun 30, 2019, by 2.5. if the business launched after June 2020, base your calculations on payroll figures from Jan 1, 2020, and Feb 29, 2020, instead.
Who’s Eligible to Apply for the Paycheck Protection Program?
With the possibility of full loan forgiveness in the cards, the Paycheck Protection Program is unquestionably an attractive proposition. It’s not, however, one that’s open to all. If you want to benefit, you’ll first need to be able to prove your business has been significantly impacted by COVID and secondly that:
- The business was launched prior to 1st Feb 2020
- The current payroll is less than 500. Depending on the field of operation, certain businesses employing greater than 500 employees can still qualify – check the SBA Size Standards for details
- The company is organized for profit or is a private non-profit. Tribal concerns, 501 Veteran organizations, self-employed workers, independent contractors, gig workers, and sole proprietors employing fewer than 500 are also eligible
- The company is based primarily in the US or contributes significantly to its economy
How to Apply for the Paycheck Protection Program in South Dakota
The SBA may be the ones administering the program, but all applications for the PPP must be made directly to an approved bank, union, or other participating lenders. For a full list of approved lenders in South Dakota, visit the SBA’s Lender Finder Tool. As most small businesses are finding, it pays to shop around before fixing your cap on any one lender. While the terms of the program may be the same, some lenders are showing a preference for applications from larger companies seeking larger loan amounts, to the end that applications from smaller concerns are falling to the bottom of the pile. Apply due diligence and shop around: ask how many applications they’ve received versus how many they’ve processed. If the difference is substantial, move on. Once you’ve decided on your preferred lender, download and complete the PPP Borrower Application Form and submit along with any requested business documents directly to the lender.
Economic Injury Disaster Loan
The Economic Injury Disaster Loan (EIDL) is an existing fund that’s received additional funding in light of the COVID crisis. Loans are available up to a maximum of $2 million and come with a fixed interest rate of 3.75%. No collateral is needed on loans of $25,000 or less and no personal guarantee is required on loans of $200,000 or less. Although full loan forgiveness isn’t in the cards, applicants do have the option to take a $10,000 advance on the loan, which is then paid as a forgivable grant. If you qualify for both the PPP and the EIDL, there’s nothing to stop you applying for both – just be aware that you’ll need to use the funds from each loan for different purposes (so, for example, if you use the PPP for salaries, you’ll need to use the EIDL for rent, utilities, and other fixed operating expenses).
Who’s Eligible to Apply for the Economic Injury Disaster Loan?
Although the EIDL was originally open to all small businesses, eligibility is currently limited to agricultural concerns employing less than 500. In case of any changes, check the EIDL Portal for updates.
How to Apply for the Economic Injury Disaster Loan in South Dakota
All applications to the EIDL should be made directly at the SBA’s website. The application is straightforward, but be prepared to confirm details relating to ownership, payroll, business activities, and any prior criminal history. If you need any guidance in completing the application, a list of local resources is provided at here.