SLO County businesses hit roadblocks getting stimulus bank loans. Here are some tips
Update: The SLO Chamber is hosting free weekly webinars with the Small Business Development Center. This week, the organization is calling for questions from the public that SBDC director Judy Mahan will then answer live.
For more information, go to: https://slochamber.org/event/2-pm-webinar-sbdc-slo-chamber-webinar-series/
Original story: Morro Bay yoga instructor Valentina Petrova is among the scores of business owners nationwide seeking a federal stimulus package loan to help make up for lost income during the coronavirus pandemic.
Petrova has encountered a drop-off in business over the past few weeks. Unable to host classes at her studio due to San Luis Obispo County’s shelter-at-home order, she’s offering online yoga classes instead.
Adding to the strain is the fact that she’s running into roadblocks trying to get business loan financing with local banks — funding made available through the federal Coronavirus Aid, Relief, and Economic Security Act (C.A.R.E.S.) signed into law by President Donald Trump on March 27.
“I can’t get to the door,” Petrova said. “I qualify for a Small Business Administration loan. I just can’t get processed.”
Petrova wants to get in line for Paycheck Protection Program relief funding, one of the types of business loans offered through the federal legislation. But she has been turned away by several banks facing a backlog of application requests.
Petrova said she deposits client fees in a personal bank checking account and meticulously reports taxes. She has called several local banks that are approved local funders of U.S. Small Business Administration loans, which are authorized to finance businesses under the C.A.R.E.S. program.
“Some banks say I need a business checking account,” Petrova said. “I don’t have a business account because of the extra fees and I don’t have any employees. It’s just me.”
Banks overwhelmed by business loan requests
San Luis Obispo County business leaders say that indeed the banks have been swamped with requests, and that bankers are prioritizing clients with existing depository and credit relationships, partly because it expedites processing. Some of the background vetting already has been done for those with credit lines.
“I’m hearing anecdotally from businesses that ‘They’re not accepting my applications’ or ‘They’re not letting me in,’” said Jim Dantona, San Luis Obispo Chamber of Commerce CEO and president. “The difficult part is this program was approved two weeks ago. And the issue is that in most emergency situations, like an earthquake in California, the impact is to that area and the relief is delivered to that area, but this is a whole new program for an entire country.”
On Tuesday, the U.S. Treasury Department asked Congress for an additional $250 billion in funding for small business loans toward the Paycheck Protection Program, to help meet the demand — as the initial $350 billion pot could run out of money. The additional $250 billion in funding hasn’t yet been approved by Congress.
The federal loan funding is designed to help inject life into the economy as business activities begin to get back to normal in coming months.
The federal loan funding is designed to help inject life into the economy as business activities begin to get back to normal in coming months.
“We know that our business community and members are very anxious to keep businesses afloat, not only for them but for their employees,” Dantona said. “The loans are the lifeline to help make that happen.”
Judy Mahan, director of the local region’s Small Business Development Center, said that banks are working hard to accommodate loan applications. But it will likely take a few weeks to sort all that out, she added, and patience is needed.
Mahan recommends that local business owners still try to process their applications, as banks start to better handle the flood of application requests, and new banks seek to gain approval for SBA lender status.
“A lot of banks are prioritizing client needs and client accounts, which is normal,” Mahan said. “But there are banks starting to catch their breath and accept new clients. And new banks are seeking SBA lender (status), which could happen shortly.”
Mahan also said that some non-traditional lenders, called financial technology or fintech companies, may be approved to lend as well.
Lendio and Kabbage are among one of the fintech companies now taking applications for Paycheck Protection Program loans. Those companies partner with SBA-approved lenders to help secure the loan, but they are not direct lenders.
“Loan agreements will identify the lender to small businesses at signing, and any loan made under the program must also be submitted to and approved by the SBA,” Kabbage officials noted on its website. “Program funds are limited. Kabbage does not guarantee that applications will be processed and submitted before program funding is no longer available.”
The Small Business Development Center, based in San Luis Obispo, has a task force of experts helping people who are struggling to navigate the loan process system, Mahan said, and local businesses are encouraged to reach out.
“The next six months may look uncertain to a lot of companies, bigger and smaller,” she said. “If you think you need a loan to provide that financial cushion or support, you should apply.”
Federal funding for loans during coronavirus
The C.A.R.E.S. Act funding offers money for two types of business loans — the Economic Injury Disaster Loan (EIDL) program and Paycheck Protection Program, also referred to as the PPP.
Mahan explained the difference between them in a conference call with San Luis Obispo Chamber of Commerce members on Thursday, saying EIDL money offers up to $2 million that can be used for fixed debt, payroll, accounts payable and operational costs affected by COVID-19.
The loan is available at a 3.75% annual interest rate of up to 30 years; nonprofits have a 2.75% annual percentage rate. Loans over $25,000 require collateral, such as real estate.
Mahan said the monthly payback rate for a $25,000 loan, for example, would be $116 per month, and a $100,000 loan would be paid back at $463 per month.
For information about EIDL applications, call 800-659-2955 or go to www.covid19relief.sba.gov.
The PPP loan is designated to help keep the workforce employed and offers up to $10 million at a 1% APR. Borrowers must spend at least 75% of their loan on payroll costs, while the rest can be spent on other expenses such as rent and utilities.
The loans can be up to two and a half times the borrowers’ average monthly payroll costs in January and February 2020.
For eight weeks after the loan is approved, expenses used for business purposes, such as payroll and rent, will be forgiven.
If a company’s annual payroll is $120,000, a maximum loan would be $25,000. If the payroll is $1.2 million, a loan would be $250,000.
“The forgiveness aspect (up to eight weeks) of this loan is a unique part of this one, and the SBA says ‘Yes, that’s okay,” ” said Michael Manchak, president and CEO of the Economic Vitality Corporation of San Luis Obispo County. “People are really panicked. We don’t know the whole economic impact yet.”
For more information about the PPP loan, go to home.treasury.gov/system.
How local businesses can weather COVID-19 outbreak
Thursday’s conference call hosted by the San Luis Obispo Chamber of Commerce highlighted several ways that business owners can help weather the economic storm.
One of the first steps businesses can take is to consult with San Luis Obispo County’s Small Business Development Center network on their individual concerns.
According to Mahan, business owners can also:
▪ Try to get a tenant lease deferred by working out an agreement with a commercial landlord,
▪ Talk to your insurance for potential funding availability through specific plans,
▪ Crowdfund to inspire community members supportive of local businesses and
▪ Use your credit cards to cover immediate costs.
Startups might considering going back to investors to help stay afloat until business as usual returns.
Mahan said the SBDC is not not recommending that businesses use credit cards to cover expenses, but it’s an option in a crunch.
*Correction: This story has been updated to clarify the roles of the fintech companies Kabbage and Lendio and note that U.S. Congress has not yet passed a proposed additional $250 billion in PPP loan stimulus funding.
This story was originally published April 12, 2020 at 5:00 AM.
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