Small businesses are one of the biggest employers in the US. Unfortunately, they’ve also been amongst the hardest hit by the COVID-19 pandemic. If you’re among the many small business owners in Massachusetts whose business has been adversely affected by the crisis, you may be able to seek assistance. Since the introduction of the CARES Act on March 27, small businesses that have suffered financial loss as a result of COVID-19 have been invited to apply for assistance through two newly introduced programs administered by the SBA: the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL). Essentially, both loans serve the same purpose: to support businesses with payroll and operating costs. However, as the terms, loan amounts, and application processes vary between the two, it’s important to bring yourself up to speed on the differences before getting started. To get you started, here’s our guide to applying for a small business loan in Massachusetts.
What is the Paycheck Protection Program?
The Paycheck Protection Program (PPP) has been created with the express purpose of encouraging small businesses to maintain their payroll. Use of the loan is therefore limited, and application acceptance is conditional on the funds being used to support payroll, wages and other forms of compensation, holiday, retirement, and severance pay, and healthcare benefits, along with general operating expenses such as rent, utilities and mortgage interest payments.
The maximum loan amount that can be borrowed is $10 million or $100,000 for each covered employee. The actual amount you can borrow will be based on how long your business has been in operation. Businesses that launched on or before February 15, 2019, will be able to apply for a loan equating to 250 percent of its average monthly payroll expenses from February 15, 2019, to June 30, 2019. Businesses that launched after February 15, 2019, will be able to apply for a loan equating to 250 percent of its average monthly payroll expenses from January 1, 2020, and February 29, 2020.
With attractive terms and an easy application process, the PPP is unquestionably an appealing option for businesses that have suffered a loss of revenue. However, only certain businesses are eligible to apply, so be sure to check you meet the requirements before beginning your application.
The Eligibility Criteria
If your business has been in operation since at least January 31, 2020, has suffered a temporary loss of income as a result of the COVID-19 crisis, and meets the following conditions, you are eligible to apply for the PPP.
- The business has less than 500 workers on its payroll, or has more than 500 employees but is classified as a small business under the SBA Size Standards
- The business is a registered 501 Veteran organization, private non -profit, cooperative, or tribal business
- You are a sole proprietor, independent contractor, or self-employed person
Before you apply for any loan, it’s vital to check the terms. Looking at the PPP, the chief areas of interest include:
- A 2-year loan term
- Loan forgiveness if at least 75% of the loan funds are used towards payroll expenses, with the remainder to be used for operating costs
- No SBA fees or early payment penalties
- A fixed interest rate of 1%
- Automatic loan payment deferral for 6 months (although interest will accrue during this period)
The Application Process
All applications for the PPP must be made via an approved, participating lender. This includes:
- Existing SBA 7(a) lenders
- Federally insured depository institutions
- Federally insured credit unions
- Farm Credit System institutions
A full list of SBA approved Paycheck Protection Program lenders in Massachusetts can be found on the SBA website.
Once you’ve chosen your preferred lender, download and complete the PPP borrower application form from the SBA website, and submit to your lender along with the required supporting documentation.
What is The Economic Injury Disaster Loan (EIDL)?
The Economic Injury Disaster Loan, like the PPP, is intended to support with payroll and operating costs. However, there are a few key differences to note in terms of both the loan terms and the application process. According to the needs of the business, loans are available up to a capped limit of $2 million.
The Eligibility Criteria
As with the PPP, the EIDL is limited to those businesses that employ fewer than 500 employees or that employ more than 500 but satisfy the SBA Standards for Size. The SBA also demands that businesses satisfy the following conditions:
- The business is organized for profit
- The business operates primarily within the U.S. or makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor
- The business is independently owned and operated
- The business is not dominant in its field on a national basis
Chief conditions of the EIDL to note include:
- No personal guarantee is needed on loans up to $200,000
- A credit check will be performed as part of the acceptance procedure, as will a review of the business records
- The usual SBA requirement to prove you’ve have been unable to get credit elsewhere is waived
- Collateral is not needed on loans of up to $25,000. Loans of $25,000 plus can be secured with business assets
- The interest rate is fixed at 3.75% for businesses and 2.75% for nonprofits
- 30-year maturity
During the application process, you will be asked if you would like to receive $1,000 per employee, up to a maximum of $10,000, as a forgivable advance. If you choose this option, the advance will be paid within 3 days of loan approval
The Application Process
According to the SBA, applying for the EIDL should take no more than 2 hours 10 minutes to complete. All applications should be filed directly at the SBA website. Should you require any assistance during the application, the SBA recommends you reach out to your local Small Business Development Center (SBDC), Women’s Business Center, or SCORE mentorship chapter. A full list of support centers in Massachusetts can be found at this site.