Small businesses need a financial safety net now more than maybe ever. As large swaths of the US economy remain closed, small business owners across America have had to shutter their businesses. These closures—or transitions to online-only or takeout business—-have put a strain on many small businesses’ working capital.
So what can small businesses do? Thanks to swift work from the US government, small businesses can apply for financing through the SBA. Paycheck Protection Program (PPP) loans and Economic Injury and Disaster Loans (EIDLs) provide low-interest loans for impacted small businesses, but they’re not the only option.
Lenders are still funding small business loans, and the products borrowers are most likely to qualify for right now are also the loans that provide the fastest funding and most flexibility.
Paycheck Protection Program (PPP) Loans
If you’ve heard talk of one coronavirus financing option, it’s probably PPP loans. Created under the CARES Act, PPP loans are low-interest, potentially forgivable loans. Designed to help small businesses keep employees on their payroll, the maximum loan amount for each business is 2.5 times its average monthly payroll cost. That number includes items like wages, as well as paid vacation days, separation or dismissal allowances, and group healthcare costs.
Funds used for approved purposes, which are all payroll related, over the course of the first 8 weeks of the loan (starting at the date of funding) are eligible for forgiveness. To have your PPP loan forgiven, you’ll have to provide documentation to prove that the funds were used for allowed purposes and apply with your lender. We don’t know the full extent of what the forgiveness process will look like because PPP loans have only just started funding and no borrower has yet reached the point where they can apply for loan forgiveness.
Economic Injury and Disaster Loans (EIDLs)
EIDLs previously existed as a form of disaster financing through the SBA before coronavirus. Small businesses in designated disaster areas are eligible to apply, and the good and bad news is that all US states and territories qualify as a result of coronavirus. To qualify for the loan, small businesses need to prove that they’ve suffered “serious economic injury” as a result of coronavirus. Borrowers should be prepared for more documentation and a longer time until funding—approximately 60 to 90 days.
To apply for an EIDL, you must apply through the SBA’s website. The application takes an estimated 2 hours and 10 minutes to complete.
Emergency Economic Injury Grant (EEIG)
60 to 90 days is a long time to wait for an EIDL, and on top of that, the SBA had trouble with elements of the rollout. To make it up to small businesses, the government agency has offered Emergency Economic Injury Grants (EEIGs).
To be considered for an EEIG, your small business must complete the EIDL application. On the fourth page of the EIDL application, you can click a box that says “I would like to be considered for a loan advance of up to $10,000.” Click it. That’s all you have to do to apply for an EEIG.
While the SBA uses the language “loan advance” on their EIDL page, it is a loan advance that doesn’t have to be repaid. Confusing? Yes. But essentially, the “loan advance” is used interchangeably with EEIG. If your business applies for an EIDL, you should ask to be considered for an EEIG to potentially receive up to $10,000. Importantly, the SBA also notes that you don’t need to qualify for an EIDL to receive an EEIG.
Business Line of Credit
Ultimate flexibility for when you need it the most, a business line of credit allows small businesses to borrow against a predetermined sum. You can borrow as much as you need, repay it, and repeat as many times as you need or want to over the course of the loan term.
A business line of credit is an ace form of financing in the time of coronavirus because it provides a financial safety net without the same obligations of a standard business loan.
Accounts Receivable Financing
Are you waiting on unpaid invoices? Accounts receivable financing, also referred to as factoring, might be the solution for your business. This loan type allows you to leverage the money you are owed for working capital today.
Short Term Loan
A short term loan is designed for when you need quick access to capital that you can also repay quickly. Short term loans are often funded in as little as 24 hours and can be an essential lifeline for small businesses that need fast cash. Short term loans are designed to be repaid quickly, so this loan is best used for when you have a clear sense of how you can repay the loan quickly to avoid rising costs associated with longer repayment terms for short term loans.
An ACH loan, often referred to as a “cash flow loan,” is another quick financing option, and it comes with looser requirements. ACH loans are based on a borrower’s daily bank balances rather than on credit score, making the loan type accessible to a broader swath of borrowers. Loan repayments are automatically deducted directly from your checking account, so you won’t have to worry about scheduling reminders for payments.
Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on Lendio.com, FitSmallBusiness.com, and ModernHealthcare.com. Grant is also the author of the book “Rhino Trouble.” He has a B.A. in English from Brigham Young University.