The year 2020 woke up to a whole new world. The hustle-bustle took a long pause. The whole world reeled under the effect of the deadly coronavirus pandemic. Every country imposed a total lockdown. This meant that not a single person could step out of the house.
With all shops and businesses shut, the financial situation of the country took a deep dive. When the whole market was crashing, you can imagine the impact on small businesses. But did you know that 99.9% of all the businesses in the USA are made up of small businesses?
Every pharmacy, salon, or any shop that generates less than $7.5 M sales per annum comes under the category of small business. Of all the new jobs generated, 62% comes from these establishments. We can say that small businesses are the drivers of economic growth.
Some Startling Facts
You will be baffled to see the data on the effect of covid-19 on small businesses:
- 94% of firms reported a negative effect. It included massive layoffs, employment wage reduction, drop-in financial dealings, and drop in market shares.
- Less than 50% of the small businesses have even a month worth of financial cushion.
- 9% of small businesses permanently lay off their employees. This means every 1 in 10 small businesses is cutting down in terms of employees.
- 75% have admitted that they will have to shut down their business permanently in the next 3 months because of the drop in sales and not enough support to keep the business going. In numbers, this accounts for about 2 million businesses!
- In February 2020, about 13.6 million business owners worked for more than 15hours. This figure dropped to 9.8 million in April 2020.
- Female business owners dropped to 4 million in June from 5.4 million in April 2020.
- Laundry services suffered the most fatal blow. 79% of laundry owners reported losses in April 2020.
- African-Americans are the worst hit with more than 41% reporting a drastic drop in their active business.
The Need for Coronavirus Small Business Loan
The world first had its encounter with the pandemic in the first week of March. Initially, people thought that it would last for 2 weeks only! There was no concrete data regarding the spread and effect of the virus. As the pandemic gripped the world, the healthcare system collapsed. The governments all over the world imposed strict lockdown. This meant zero business.
All the businesses, especially the small businesses were hit hard. Reports suggest that small restaurants, pharmacies, cottage industries, and start-ups are the worst hit. This prompted the SBA or small business administration to introduce a coronavirus small business loan. You can see about a loan here. Here are major reasons to take this initiative:
- It will provide 3-month tax relief to the small business owners. This will relieve the already existing financial crunch.
- Small businesses can get up to 2.5 times their monthly payroll. This is aimed at allowing the companies to keep their employees paid, solving the supply chain issues, and easing the unemployment issues.
Highlights Of The Loan
The highlights of this loan are:
- The SBA’s already existing Emergency Injury Disaster Loan (EIDL) provides economic support of $2 million a Sloan to small business owners.
- Any firm with less than 500 employees can apply for this loan. Even sole entrepreneurs, freelancers, farmers, and non-profit organizations can apply for this loan.
- Another coronavirus fund, known as the pay-check protection program, will provide a loan of $349 billion to small entrepreneurs. This includes small agricultural cooperatives too.
- Small businesses will get a loan at a 3.75% interest rate while non-profit organizations can get the same at 2.75%.
- The establishments can opt to repay the loan for a long period of 30 years.
- A business can even get their loan forgiven if they meet certain requirements like not laying off the employees during the pandemic and not reducing their wages or monthly salary.
- As soon as the loan scheme was launched in April, about 90 million Americans claimed assistance of up to $1200.
Requirements You Must Fulfill To Avail Of This Loan
Not everyone can get this loan. You must meet certain criteria. Let us have a cursory look at the important eligibility criteria that you must meet:
- You must be a small business establishment with less than 500 employees.
- You can also be a qualified agricultural businessman. This category includes small businesses involved in ranching, aquaculture, the raising of livestock, and any other form of agricultural activity.
- You must be unable to secure any other form of financial assistance from anywhere.
- To seek this emergency funding, your county and state must first get the area declared a disaster-hit by the SBA. If that is not the case, you cannot apply.
- Financial and payroll information like several existing employees, company’s tax returns in 2019, loan application history, profit and loss statement, business federal income tax returns for, last 3 years, and so on.
- Business documents like articles of incorporation, trust agreement, business lease and terms, and so on.
- Owner information like list of ownership and affiliations, personal financial statement, and so on.
The Final Say
The coronavirus pandemic has unsettled the world market. Every business is reeling under its threat. The more terrifying figures are coming up every day. The rate of unemployment is high as small businesses are forced to lay off their employees.
So, the obvious issues arose with the government. If all the small businesses shut down, then how will the economy thrive? The usual emergency fund failed to meet the wide-spread need for economic assistance. As a result, the SBA started the coronavirus small business loan.
The loan has so far received an overwhelming response. More and more small businesses are opting for the relief to pay their employees, clear the dues, and resume that business. Normally, these are the requirements that you need to provide while applying for the loan you want. If you are one of such business owners, you should contact your nearest SBA office or seek help online on their website.