By Roman Basi The Biden administration made changes to the pandemic aid program, aiming to help the smallest of businesses, sole proprietors and minority-owned firms. To that end, small businesses with 20 employees or less are being prioritized for payroll protection program (PPP) loans.
While PPP funding has been instrumental in helping small businesses and their employees since April of 2020, some of the smaller businesses have had trouble accessing these critical loans. The administration is hoping this prioritization will even out the allocations of the loan throughout small businesses.
How it works: An eligible business can apply for a first- or second-round draw of funds. To qualify for the second round, a business must have spent—or plan to spend—all of the first-round loans and show a 25% drop in revenue in any quarter of 2020. For a regular business with employees, these loans are normally two and half times payroll costs, but a one-person firm that doesn’t have a payroll may have been at a disadvantage. To address this imbalance, the Small Business Administration (SBA) will be recalculating the loan amounts from gross income instead of net profit, thereby increasing the amount the business will receive.
At the same time, SBA is increasing the maximum amount small businesses and non-profit organizations can borrow through its COVID-19 Economic Injury Disaster Loan (EIDL) program. Starting the week of April 6, 2021, the SBA is raising the loan limit for the COVID-19 EIDL program from six months of economic injury with a maximum loan amount of $150,000 to up to 24 months of economic injury with a maximum loan amount of $500,000.
According to Isabella Casillas Guzman, SBA administrator, more than 3.7 million businesses employing upwards of 20 million people have found financial relief through SBA’s EIDL loans, which provide low-interest emergency working capital to help save their businesses. However, the pandemic has lasted longer than expected, and SBA says they need larger loans. In fact, many have called on SBA to remove the $150,000 cap.
Businesses that receive a loan subject to the current limits do not need to submit a request for an increase at this time. SBA will reach out directly via email and provide more details about how businesses can request an increase closer to the April 6 implementation date. Any new loan applications and any loans in process when the new loan limits are implemented will automatically be considered for loans covering 24 months of economic injury up to a maximum of $500,000.
This new relief builds on SBA’s March 12 announcement that the agency would extend deferment periods for all disaster loans, including COVID-19 EIDLs, until 2022 to offer more time for businesses to build back. In order to shift all EIDL payments to 2022, SBA will extend the first payment due date for disaster loans made in 2020 to 24 months from the date of the note and to 18 months from the date of the note for all loans made in the calendar year 2021.
Questions about SBA COVID-19 EIDL and disaster loan payments can be emailed to DisasterCustomerService@sba.gov or directed to SBA’s Customer Service Center. Meanwhile, the professionals at The Center for Financial, Legal and Tax Planning can provide advice on reducing your tax burden using proceeds from PPP loans. Please contact us at 618.997.3436.