Two types of loans will soon be available for small businesses for disaster relief related to COVID-19: disaster loans through the $2.2 trillion stimulus plan approved Friday, March 27, and Small Business Association (SBA) loans.

Paycheck Protection Program through the stimulus plan

Congress passed the stimulus package that was signed by President Donald Trump Friday afternoon. The plan includes the Paycheck Protection Program, which will distribute $350 billion to small businesses that can be partially forgiven if the companies meet certain requirements. The loans will be available to companies with 500 or fewer employees.

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Businesses can receive loans of up to $10 million, based on how much the company paid its employees between Jan. 1 and Feb. 29, 2020. The loans will carry an interest rate up to 4% and will be administered by banks and other lenders.

If a business uses the loan funds for approved purposes, such as payroll, rent, utilities and other necessary expenses, and maintains the average size of its full-time workforce based on when it received the loan, the principal of the loan will be forgiven, and the company will only need to pay back the interest accrued.

There is still much to be learned in the coming days and weeks on details of the stimulus package and Paycheck Protection Program.

SBA Disaster loans, which are currently available

On a webinar Friday hosted by the Nashville Chamber of Commerce, LaTanya Channel with the U.S. Small Business Association in Nashville explained how Economic Injury Disaster Loans (EIDLs) through the SBA can assist small businesses in weathering the economic impacts of COVID-19.

Small businesses, with up to 500 employees, can receive up to $2 million at 3.75% interest with up to a 30-year term, and nonprofits can receive up to $2 million at 2.75% with up to a 30-year term, administered by the federal government. The funds must be used to meet ordinary and necessary financial obligations such as accounts payable, rent, utilities, payroll, etc.

These loans will be on a one-year payment deferment with no application fee, points or closing costs and no collateral will be required on loans of up to $25,000. In addition, there is a cap of 4% interest for items not covered in the above identified purposes with a 10-year term limit. Small businesses who wish to apply for EIDL loans must do so directly through the SBA.

Where to begin

Sean Henneberger, senior vice president of small business at Pinnacle Financial Partners, noted that small businesses cannot receive both loans, but they can apply for both. If businesses receive a traditional SBA EIDL loan for COVID-19 purposes, they are ineligible for the benefits of what is being referred to as the Paycheck Protection Program.

“We’ve been telling clients to go ahead and start an application for the first (EIDL loans) instead of waiting around on the second (Paycheck Protection Program loans),” Henneberger said. “But when the second is finally available, we can change course if necessary. So, it’s all about getting started now so small businesses don’t lose any time.”

David Waddell, CEO and chief investment strategist for Waddell & Associates, a local wealth management firm, said that small business owners should be “sitting in their banker’s office right now.”

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“There are 4,700 banks, 75,000 bank branches and millions of small businesses,” he said. “It’s going to be a rush just like it’s overwhelming to health care systems. Go ahead and take a number now. There will be a whole lot of people in line.”

Henneberger said Pinnacle’s phone began ringing about two weeks ago from businesses that were already seeing the financial hit from the economic downturn. Shelby County Mayor Lee Harris had called for restaurants, bars, gyms and more to close as of 6 p.m. Tuesday, March 24; however, some businesses were already having to close the doors before then.

“First, we’re (Pinnacle) hearing from restaurants, then distribution companies. More or less, it’s a ripple effect,” Henneberger said. “We’ve done our part to try to connect some clients to each other to help each other out.”

Henneberger encourages small businesses to talk to vendors to see if there is any potential for a payment plan, and, if it is operating out of leased property, to talk to their landlord to see if there are options to defer payments. Basically, he suggests, “getting down to the gritty in regards to conserving some capital to weather the storm.”

Lori Turner-Wilson, CEO and founder of RedRover, a local sales and marketing strategy agency, is familiar with hunkering down during an economic crisis. RedRover was just 2 years old when the 2008 recession hit, so she has first-hand experience in navigating growth for her company and supporting clients in doing the same during a challenging time.

“While some (small businesses) may be tempted to implement a ‘wait and see’ approach to growth, it’s decisive, forward-thinking action that wins the day,” she said. “If you intend to be successful for the long haul and enjoy a quick recovery, you must recognize the colossal brand-building opportunity in front of you.”

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Turner-Wilson encourages small business owners to lean on their CPAs and attorneys for guidance in terms of SBA loans and the impending stimulus package, since there is no “one-size-fits-all” solution.

“There’s been a full-on assault on our economy and the financial health of most businesses, thanks to COVID-19,” she said. “Together, we must go to battle to ensure that our businesses not only survive, but thrive on the other side of this pandemic. That means playing offense versus defense.”

Small businesses can apply for the SBA loans at https://www.sba.gov/funding-programs/disaster-assistance or call the Tennessee Small Business District Office in Nashville at 615-736-5881.

Waddell, in his weekly webcast Friday, also provided these observations:

“2008 was a financial crisis. 2020 is a small-business crisis. I don’t know that we’ve ever had one of those.

“It’s not a large-business crisis. They’ve got big balance sheets, you know, they’ll get $500 billion in stimulus. Big businesses will live through this.

“Small businesses, man, it’s tough, and that’s the majority of our conversation with our clients.”

Waddell tried to find comparative information by looking at what happened to small- and medium-sized banks and credit unions after the 2008 crisis. They had 28% of market share in 2006 and that had fallen to 16% in 2018.

“Too big to fail meant we only wanted a few banks. Then we could regulate them.

“There’s probably an analog here. I don’t really like it. I don’t like winner-take-all economies. But there’s going to be risk aversion in the small business world.”

He also said startup business activity in the U.S. has been declining, “so there’s been a dearth of entrepreneurial activity. It’s very hard to start businesses. So, we already had some trends that were dispiriting relative to small business. I think this does make it more challenging, so does risk aversion, to see a proliferation or big rebound in small businesses. It’s going to have to be some policies that address this.”

“Also, there will be a lot of M&A activity,” Waddell said. “Big business with big balance sheets will take out small businesses with upside down balance sheets.

“If you’ve got capital, this is an excellent time to be an acquirer and you’ll see a lot of that sort of vulture capital coming back in to pick off some fallen angels.

“We are spending time and energy tracking the stimulus to try and figure out how to get it into our clients’ hands,” Waddell said.

Teresa Bailey, wealth strategist with Waddell & Associates, added, “If your business has been great and your relationship with your business lender has fallen away, now is the time to bring that back. You really want a friend and a face with something like this, that can guide you.

“Right now, with that person, you’re going to be preparing all of your documents for that application.

“We think the fastest dollars that come in will be in the form of grants for up to $10,000. Those will be based on your credit score, we think,” Bailey said. “Get a relationship, start to prepare, there will be a lot of documentation required.”

Reporter Wayne Risher contributed to this story.