As unemployment numbers skyrocket nationwide, and businesses remain shuttered due to coronavirus, officials with the Small Business Administration reached out to the small business community in Weslaco to explain how they can find help.
Emergency funding and forgivable loans were the primary topic of discussion during a webinar hosted by the Economic Development Corporation of Weslaco Thursday morning which was attended by nearly 100 people. On hand to discuss the economic lifelines approved by Congress as part of the $2 trillion CARES Act last month were two officials from the SBA, a local banker, and state Rep. Armando “Mando” Martinez.
The emergency legislation opens up new avenues for small business owners to apply for help, including an entirely new program called the Paycheck Protection Program, two forms of Economic Injury Disaster Loan program loans, a debt relief program for existing SBA loans, and a series of emergency grants and express loans.
The PPP offers the largest pot of money for small business owners to try to access — some $349 billion in SBA-guaranteed loans to be meted out by local banks, according to Reynaldo Vasquez, economic development specialist for the SBA. “This is a guarantee that the SBA is doing to your lender,” Vasquez said.
“This is the way the government is working with the private sector to be able to obtain more access to capital,” he said.
The program application process officially opened up to small business owners April 3, and is expected to open up to independent contractors Friday.
Under the terms of the legislation, business owners can apply for up to $10 million in loans that may be forgiven up to 100%.
In order to qualify for complete loan forgiveness, at least 75% of the money must be used for payroll. The remaining 25% of the loan can be used for other operating expenses, such as mortgages, rent, and utilities. The funds can also be used to cover some payroll benefits, such as parental, family, medical or sick leave.
“It’s really a program I haven’t seen before and it’s really friendly for businesses,” Vasquez said.
The application process is fairly simple — a two-page application that asks for basic identification and payroll figures. The PPP loans require no collateral, no personal guarantees and no borrower / lender fees, Vasquez said.
Business owners can request funds equal to eight weeks of payroll costs, plus an additional 25% of that amount. Payroll costs will need to be verified via documents such as a business’ annual 940 payroll tax report, according to Rene Romero, of Rio Bank in Weslaco.
Documents proving payment of group health insurance premiums and retirement contributions can aslo be submitted to prove payroll costs, he said.
The other major funding stream business owners will be able to access are Economic Injury Disaster Loans. There are two types of EIDL funds. The first are low interest loans of up to $2 million with no payments due for at least 12 months. The loans have 30-year repayment schedules.
The second type are $10,000 EIDL Advance loans that will not have to be repaid, effectively turning them into grants. Funds are expected to be disbursed within three days of a successful application, according to Gilbert Solis, business opportunities specialist with the SBA.
Business owners can apply for both PPP funds and EIDL funds, but may not use the proceeds to “double dip,” Vasquez said. In other words, should a business owner be approved for both funding sources, they cannot both be used for payroll costs.
If a borrower follows all the terms of the PPP loans, they may apply for full loan forgiveness as soon as seven weeks after disbursement, Vasquez said.
Additionally, any business person who has an existing loan with the SBA can apply for seven months of debt relief, paid for by the SBA. The relief applies to principle and interest.
With the PPP loans being facilitated through local lenders, SBA officials warned small business owners of one caveat: most banks are extending the loans to existing clients only. It’s something Romero confirmed Thursday.
Romero added that local bankers have seen some delays in processing and funding the loans.
One local business owner, Monica Berry, of Berry Homes, agreed, noting that she still has not heard back after submitting her PPP application last week. She urged business owners listening in to the webinar to get their applications in as soon as possible. “You need to get it done and you need to get it in because ‘first come, first served’ is really the way it goes,” Berry said.
The two SBA representatives confirmed that, saying the PPP application process will only be available until June 30, or until the funds run out. Already, “$100 billion were already allocated (nationwide). So it is going pretty fast,” Vasquez said.
Thus far, the disbursement of the emergency funding has remained bottlenecked by the overwhelming demand and the rush for officials to interpret and understand the new legislation.
EIDL loans can take nearly five weeks to reach borrowers whose applications have been approved, Solis said. And even then, an EIDL loan’s initial disbursement will be metered at $25,000, he said.
As the pandemic continues to rage across the country, with most states issuing shelter-at-home orders, it remains unclear how much damage the U.S. economy will sustain. The economic relief can’t come soon enough as, nationwide, more than 6.6 million people have filed unemployment claims over the last week.
Already, the state of Texas has entered a recession that could sink revenues into the billions of dollars, Armando Martinez said. “So, between COVID-19, the collapse of oil and gas — which is Texas’ biggest economy — we’ve been hit pretty hard,” Martinez said.
He said the state’s Rainy Day Fund, which boasted robust balances at the end of the 2019 legislative session, is expected to plummet by the time the 87th Legislature gavels in in January 2021. “Our balance that’s available at the beginning of 2021 will be eight-and-a-half billion (dollars), which is extremely lower than what our estimates could have been, you know, in the past,” Martinez said.
For more information on applying for the economic relief, visit the SBA online at https://covid19relief.sba.gov/#/ or contact your local lender.