On March 27th, the CARES Act was officially passed, which includes $376 billion in relief available for U.S.-based small businesses impacted by COVID-19. Following the announcement, we conducted a survey and found 45% of the brands we work with are planning to apply for CARES Act funding, but the majority of those brands haven’t begun their applications.
As we analyzed the data and financing options available via the CARES Act, we realized that one of the main reasons many brands haven’t applied yet is because it’s complicated. There are multiple programs for which a given brand might qualify for, different timelines for each one, and, in many cases, it’s confusing to understand whether your eCommerce brand is even eligible in the first place. In addition, some lenders have already begun processing loan paperwork, adding a time crunch to an already-stressful process.
With all of that said — we’re here to help. We’ve created a guide for brands who need assistance getting started. And, after speaking with advisors, listening to countless conference calls with banks and accounting firms, and conducting plenty of our own research, we’ve compiled a simple, easy-to-understand infographic to answer some key questions your brand might have as you consider the financing programs available via the CARES Act, such as:
- Which program(s) do I actually qualify for?
- How much money can I get to help my brand? And when will I actually get it?
- How do I apply?
To get the answers you need, we recommend following three steps
- Read the infographic to determine which program(s) are a good fit for your brand.
- Take a look at the information we’ve included below about each program, key dates and terms, and step-by-step guides to complex calculations required for some applications.
- When you’re ready, use the links located both in the infographic and below to apply for the right programs for you.
As your brand continues to navigate these challenging times, be sure to check out our COVID-19 resources as well.
Additional information on each CARES Act-related program
More details on each U.S. government-sponsored program to assist businesses during COVID-19 can be found below, in addition to an assortment of other helpful external links. While it is our aim to help, we are no substitute for financial and legal advisors,. Please consult with your financial and legal advisors as you determine your eligibility and prepare your application; you should not solely rely on this blog post for financial or legal advice.
Payroll Protection Program (PPP)
Terms: The maturity on this loan is 2 years, and the interest rate is 1%. No collateral or personal guarantees are required, and loan payments are deferred for 6 months. Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels, and forgiveness will be reduced if full-time headcount declines or if salaries and wages decrease.
Lenders: SBA-approved lenders (you can find a lender here). We recommend working with a lender with whom you have an existing relationship, because lenders will prioritize their existing customers before helping new ones. As of April 3rd, many lenders were still working to open and begin processing applications.
Application: See a sample here, but each lender may have a slightly different version.
Payroll Calculation for Maximum Loan Amount
One of the most potentially-confusing elements of the application involves calculating your payroll, which you’ll use to determine the size of the loan your brand is eligible for. We’ve included instructions and a couple of examples below to make it easier to understand.
How to calculate payroll:
- Aggregate your payroll costs from the last 12 months for employees who have a principal place of residence in the United States.
- Subtract from Step 1 any compensation paid to an employee in excess of $100,000 annually.
- Divide the amount in Step 2 by 12.
- Multiply Step 3 amount by 2.5.
- If you have an Economic Injury Disaster Loan that was made between 1/31/2020 and 4/3/2020, subtract any COVID-19 advance amount from Step 4 (since this does not need to be repaid).
Example A: An employer where no employees make more than $100,000 annually.
- Annual payroll: $120,000
- Average monthly payroll: $10,000
- Multiply by 2.5: $25,000
So, the maximum loan amount is $25,000.
Example B: In a business with 10 employees, nine people earn $100,000 and one earns $120,000.
- Annual payroll: $1,020,000
- Subtract compensation amounts in excess of an annual salary of $100,000: $1,000,000
- Average monthly qualifying payroll: $83,333
- Multiply by 2.5 = $208,333
So, the maximum loan amount is $208,333
Economic Injury Disaster Loan (EIDL) Emergency Advance
Terms: The borrower will not be required to pay back the Emergency EIDL Grant, even if they are subsequently denied for an EIDL loan. Before disbursing the Emergency Advance, the SBA will require that the borrower file a certification and, under penalty of perjury, that they are eligible to apply for an EIDL loan. The SBA waived any personal guarantee on advances and loans below $200,000.
Lenders: Unlike the PPP, EIDL loans will be made directly through the SBA, so all you’ll need to do is complete the online application to apply.
Application: Find it here.
Using the Advance: The advance can be used for:
- Providing paid sick leave to employees
- Maintaining payroll
- Meeting increased costs to obtain materials
- Making rent or mortgage payments
- Repaying obligations that cannot be met due to revenue losses
The advance may be deducted from PPP loan forgiveness if your business also transfers into a PPP loan — the advance payment will be considered when determining loan forgiveness. It’s worth noting that if you qualify, you can still apply for the PPP and the EIDL loans as long as the funds are not being used to cover the same costs. We recommend consulting your PPP lender as well.
Emergency Injury Disaster Loan
Terms: The interest rate on this loan is 3.75% for for-profit small businesses, and the repayment period is 10 years. Guarantee is required for loans greater than $200,000, collateral is required for loans over $25,000, and payments are deferred for 1 year. A personal credit check is required for all owners with 20% or more ownership, and abusiness credit report from Dun & Bradstreet is standard on disaster loans. However, it’s important to note that even if your application is declined, you can still keep the $10,000 advance.
Lenders: Loans are directly through the SBA.
Application: Application found here. Completing the EIDL application also automatically qualifies you for the EIDL Emergency Advance.
Express Bridge Loan Pilot Program
Terms and Fees: An application fee may be charged of either 2% of the loan amount or $250, whichever is greater. Late payment fees cannot exceed 5% of the loan payment and liquidation costs. All other fees are prohibited, and no collateral is required. Interest is a maximum of prime plus 6.5%.
Lenders: The Express Bridge Loan is available through SBA Express Lenders. Businesses must have an existing relationship with the SBA Express Lender prior to requesting the loan.
Application: The application is available through business’s existing SBA Express Lender financial institution.
Other helpful resources
For more information on applying for financing via the CARES Act, we recommend the following resources.
- Guide to the CARES Act from the U.S. Senate
- Overview of COVID-19 relief programs from the SBA
- U.S. Senate Guide to the CARES Act for Small Business Owners
Throughout it all, Yotpo is here to support your business, whether that’s through the pandemic, or the challenges that come after — from the everyday troubleshooting to the major issues like making sure you have your loyalty liability buttoned up.
