Gold rush-style, Connecticut’s struggling small businesses are expected to grab for a federal lifeline in the form of a new $350 billion loan program that will begin accepting applications on Friday.
The centerpiece of the federal government’s plan to help to small businesses pummeled by the coronavirus crisis is the Paycheck Protection Program, which was included in the massive CARES Act signed into law last month.
The program run through the Small Business Administration and its banking partners offers 1 percent interest loans – which could be forgiven – for businesses with 500 or fewer employees. The loans are also available to non-profits, independent contractors and those who are self-employed.
Starting Friday, Connecticut businesses will be able to take out loans totaling 250 percent of their average monthly payroll in 2019. If they spend at least 75 percent of that money to pay their workers, those businesses will be eligible to have the loans fully forgiven at federal expense.
The application process for the program has been streamlined. To apply for a loan at a participating bank, a business owner simply has to fill out a two-page form and provide some documentation. The loans are capped at $10 million.
A huge demand is expected for this program.
Eric Gjede, vice president of government affairs for the Connecticut Business & Industry Association, said his organization recently surveyed small businesses in the state about the impact of coronavirus.
“Eighty percent of respondents reported they expected a loss of sales,” he said.
The federal government has also initiated smaller programs aimed at helping businesses keep their employees during the crisis.
For instance, the Economic Injury Disaster Loan program, also run by the SBA, provides $10,000 grants to assist businesses, renters, and homeowners located in regions affected by declared disasters, including Connecticut.
There’s also a new “Employee Retention Tax Credit” for employers who are closed, partially closed, or experiencing significant revenue losses as a result of the coronavirus. The credit, which is fully refundable, equals 50 percent of qualified wages paid after March 12. But the maximum amount of qualified wages considered for the credit is $10,000 each quarter.
Meanwhile, a new debt relief program allows borrowers who’ve taken out new loans to defer paying principle and interest for six months.
“Businesses are looking at all of these program and searching for anything that will keep them afloat,” Gjede said.
However, it’s the Paycheck Protection Program that’s drawn the greatest interest, and banks are warning they may not be ready for the expected deluge of applications because the Trump administration has failed to provide them with the necessary guidelines. That could delay the assistance for weeks, or even longer.
“Banks are ready and willing to lend, but they need clear rules of the road and a streamlined process to be able to get funding into the hands of small business owners in the coming days,” said Greg Baer, president and CEO of the Bank Policy Institute, which represents the nation’s biggest lenders.
Gjede said even some of the Connecticut banks that are authorized to provide the SBA backed loans don’t feel “they are up to speed.”
More help for small businesses is expected in the next stimulus bill Congress will consider.
Gjede says it’s needed. “I hope more is coming because the demand in Connecticut is unbelievable,” he said.