Financial Survival for Small Businesses and Startups: Understanding Your Rights to Relief and How To Navigate The System

Guest Post by By Amanda Plank, Founder of Merch Minion
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With the recent temporary shutdown of many small businesses and startups during the COVID-19 pandemic, many financial relief programs are now available. The difficulty is knowing what’s out there, and how to navigate a system that, frankly, was never meant to deal with this kind of pressure. Fear not. It is possible, with a lot of patience and persistence to get help. Here’s what you need to know.

Part 1: Understanding The Various Programs and Eligibility
There are many different financial relief programs that have sprung up to help small businesses and startups during the COVID-19 Pandemic. Others are programs that have existed for years but have been expanded under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Here is an overview of what’s available in the U.S.

The SBA’s Economic Injury Disaster Loan (EIDL) program provides small businesses with working capital loans of up to $2 million to help overcome the temporary loss of revenue as the result of a declared disaster. The CARES Act sets out new rules that make it easier for small businesses that were damaged by closures, or had other losses, due to the coronavirus to apply for and receive loans. Keep in mind, these are loans which have to be paid back.

EIDL Advance - A borrower can apply for an EIDL loan and receive up to $10,000 as an advance in the form of an EIDL Grant. Typical turn around Pre-COVID-19 was 3 days, but please note that because of high demand, turn around on the EIDL Advances, at the time of writing this, are about 3-4 weeks. The EIDL Advance is currently capped at $1,000 per employee up to the $10,000 max. The borrower will not be required to pay back the Grant funds, even if the EIDL loan is later denied. The borrower will be required to certify to the SBA, under penalty of perjury, that it is eligible to apply. The EIDL Grant funds can be used for maintaining payroll, providing sick leave to employees, rent or mortgages payments, and paying other obligations that cannot be paid due to lost revenue.

EIDLs are available from January 31, 2020 – September 30, 2020. The EIDL Grants are backdated to January 31, 2020 to allow those who have already applied for EIDLs to be eligible to also receive an EIDL Grant. 

Who’s Eligible for the EIDL

• Sole proprietors (with or without employees), independent contractors, cooperatives and employee owned businesses, and Tribal small businesses with 500 or fewer employees are eligible for EIDLs.
  
• Also, small business concerns and small agricultural cooperatives that meet the applicable size standard for the SBA are also eligible, as well as most private non-profits of any size. 

The Paycheck Protection Program (PPP) allows businesses to apply for a SBA backed loan specifically for payroll and employee retention during the COVID-19 Shutdowns. Funding amount is 2.5 times the average monthly payroll costs determined during the one-year period before the date on which the loan is made up to a maximum of $10,000,000. If the business was not operating during the period from February 15, 2019 until June 30, 2019, the relevant measurement period is January 1, 2020 through February 29, 2020.

Please note that for seasonal employers, as determined by the SBA, the measurement period is either the 12-week period beginning February 15, 2019 or March 1, 2019 to June 30, 2019, at the election of the borrower. To apply for the PPP you must go through a banking institution you already have a financial history with, you can not apply directly through the SBA. This DOES include companies like paypal, square, and stripe. 

Covered Payroll costs include:

• salary, wages, commission, or similar compensation
• payments of cash tips or the equivalent
• payment for vacation, parental, family, medical or sick leave
• allowance for dismissal or separation
• payments required for the provision of group health care benefits, including insurance premiums
• payment of any retirement benefit
• payment of state or local tax assessed on the employee

Who is Eligible for the PPP: 

• the borrower was in operation on February 15, 2020
• the borrower had employees for whom it paid salaries and payroll taxes; and with respect to loan deferrals, the borrower was adversely impacted by COVID-19 (although this requirement is presumed).

I Heard The PPP Was A Grant, But You Say It’s a Loan. What gives?
While the SBA may be issuing further guidance on loan forgiveness, the CARES Act states that the loan obligations eligible for forgiveness include amounts expended for those obligations and services listed below that are incurred during the “Covered Period” (which means the 8-week period beginning on the origination date of the covered loan), but only where such obligation or service (in the case of mortgage obligations, rent and utilities) was an existing obligation as of February 15, 2020. (AKA you can’t go get a shop space tomorrow and then use the PPP to cover it.)

• all payroll costs excluding cash compensation for any individual employee over $100,000; plus
• any payment of interest on any mortgage incurred by borrower
• any payment of rent obligated under a leasing agreement
• any utility payment (electricity, gas, water, transportation, telephone, or internet access

To be entirely forgiven at least 75% of the PPP loan must be used toward payroll costs, and no more than 25% can be used toward the other approved expenses in the list above. 

PART 2: Tips For Navigating The System

Find Regional Small Business Grants
There are hundreds of programs and organizations offering one-time small business grants to help businesses stay afloat during and immediately after COVID-19. Check with your local SBA groups, LinkedIn Connections, and online meetups for events specifically for small businesses. They will have a better handle on what is available in your specific area. 

Have ALL Paperwork & Information Ready:
While the SBA and many banks have streamlined the application process for COVID-19 Relief funds, it is still critical that you have all your information handy when they ask for it. All business related COVID-19 Relief programs will require your:

• EIDL
• Number of years in business
• Names of any owner with 20% or more stake in your company

When applying for programs like the Paycheck Protection Program (PPP) or the Economic Impact Disaster Loan (EIDL) you will need your federal Employer Identification (EIN) number as well as personal information of the business owners (including social security numbers) that have 20% or more interest in the company. Keep in mind, they will also have you ‘state under risk of perjury that no person within the company has committed fraud, a felony related to payroll, or extortion.

Some programs will want to know your profit and loss statements for last year, others will just want to know net revenue. The PPP specifically wants your i940 for 2019 or your i941 for Q1 of 2020  if you didn’t have payroll in 2019, to prove payroll expenses as filed with the IRS.

Don’t Put All Your Eggs in One Basket
Many of the COVID-19 Relief programs are not limited by income, or the amount of relief you have already received or applied for. Apply for everything you think you qualify for. Some programs limit what the funding can be used for, (like the PPP) or the amount funded is based on the number of employees you have (EIDL Advance). Apply for as many grants, forgivable loans, and other programs as possible to make sure you get as much of the money you are entitled to.

Trim Extra Expenses Wherever You Can
Reducing your monthly expenses can help you survive the shutdown. Some expenses are easier to get rid of than others. Take a look at both business and personal expenses and cut out things you don’t use or want anymore. Gym memberships, subscriptions to a phone app you don’t use are a good place to start. 

Next look at expenses you don’t need during the shutdowns but will need once business starts up again. These can include software services and service subscriptions. Even if you don’t want to cancel, reach out to the companies and see if they have any discounts, or account credits for business shut down during COVID-19. Put as many of these costs on hold that you possibly can. Doing so extends the amount of remaining capital you have, and any funding you do receive. 

On a personal level call the companies that service recurring payments you have such as student loans, credit cards, and mortgages. Some are offering no penalty deferrals, forbearance programs, and anti-loss (mortgages) programs right. Now is NOT the time to refinance your house, even though the FEDs reduced interest rates, most lenders either locked or raised interest rates. If you have a good relationship with your bank, speak to their mortgage specialist, and tell them you’d like to monitor the interest rates, and when they do go back down (and they will) you’d like to know. It typically only makes sense to refinance if you can lower your interest rate by at LEAST 1%. Otherwise the fees eat any savings you made in the long run. 

Be Patient & Kind
While the application process for funds has been largely streamlined, there are still millions of people applying for funding. The process of applying is slow and systems are overloaded. Many loan officers are also working from home. 

Keep in mind that those working for the SBA took a budget and personnel cut both last year and this year. These people are handling a nationwide economic disaster with a team working from home, that is only large enough to handle emergencies on a “small scale,” such as regional tornadoes, earthquakes, and floods.

Your hold time will likely be exceptionally long. Interactive Voice Response (IVRs) are overloaded and buggy (you might accidentally get hung up on by the Voice Prompts). When you do FINALLY reach a person please remember they are human too. They are working long hours, often without breaks to try and help as many people as possible. They may not have the answers/news you are looking for. 

About the Author
Amanda Plank is an entrepreneur and small business advisor. She is also the founder of Merch Minion, a custom merchandising and brand promotions company in Seattle Washington.