Small businesses were hit the hardest during the height of the 2020 pandemic. Forced closures and safety measures to prevent the spread of the virus severely affected small business owners.
A lot of people are having their goods delivered via online stores and it’s estimated that the pandemic accelerated the shift to eCommerce by five years.
The U.S. government activated several stimulus packages for small businesses, the most recent one being the American Rescue Plan Act (ARPA), which was signed into law by President Biden on March 11, 2021.
Also called the COVID-19 Stimulus Package, ARPA stipulates an additional $1.9 trillion in spending to address the continued impact of the 2020 pandemic.
ARPA builds upon many of the provisions of the Coronavirus Aid, Relief and Economic Security (CARES) Act and Consolidated Appropriations Act, 2021.
We’ll explore how this stimulus can help your small business along with other potential funding options (such as small business grants and emergency loans) to jumpstart your economic recovery.
In this guide, you’ll learn about:
- What types of financial assistance are available to small businesses
- How to choose the right funding option for your small business
- How to apply for business loans and grants
- Where to look for funding
- Why online stores also need funding
Types of Funding: Loans vs. Grants
While stimulus packages for small businesses will help you get money for your company, you have to determine what kind of funding to apply for.
The main difference between small business loans and small business grants is whether they require repayment.
Loans have to be repaid, but grants are essentially free money. Because grants are freely given, they can be highly competitive and come with conditions that require them to be spent a certain way.
Both types of financial assistance have programs that cater specifically to certain groups, such as women, people of color, and veterans. However, grants are typically awarded based on need. Loan servicers decide to grant funds based on your ability to pay it back.
You need a good credit score to qualify for most loans. And how you repay the loan can impact your credit for better or worse. Alternatively, small business grants can be considered taxable income but will not affect your credit.
Exploring Small Business Loans
The stimulus package for small businesses includes a provision for small business loans. There are several types of loans available from both government and private entities, each depending on business needs, length of the loan, and payment terms.
The new stimulus package for small businesses also revives the State Small Business Credit Initiative (SSBCI) with $10 billion in funds.
The SSBCI, which expired in 2017, was created to support small business financing by providing affordable loans for capital. Allocation of funds by the U.S. Department of Treasury depends on the economic condition of each state.
The U.S. Small Business Administration (SBA) provides small business owners the resources and support they need. Entrepreneurs can apply through the SBA for funding from the stimulus package for small businesses.
Government Small Business Loan: Paycheck Protection Program (PPP)
The Coronavirus Aid, Relief, and Economic Security (CARES) Act allotted nearly $350 million for the Paycheck Protection Program (PPP).
The PPP stimulus package for small businesses allows both physical and eCommerce stores to borrow up to $10 million.
Unlike traditional small business loans, PPP loans do not have to be repaid.
However, you must adhere to several conditions for PPP loan forgiveness. This includes spending 60% of the money to support your employee payroll and qualifying expenses (rent, mortgage interest payments, and utilities).
You can apply for a PPP loan through an accredited bank or credit union. Self-employed individuals can also apply.
Government Small Business Loan: Economic Injury Disaster Loans (EIDL)
The SBA has a loan program for businesses that have suffered from disasters such as the 2020 pandemic. The Economic Injury Disaster Loans provides up to $2 million in working capital loans to small businesses and nonprofit organizations with less than 500 employees.
Loans are payable over 30 years at a 3.75% interest, and loans under $200,000 require no personal guarantee.
Government Small Business Loan: SBA Express Bridge Loans
The stimulus package for small businesses also includes the SBA Express Bridge Loan. It is only available to companies that have an existing relationship with SBA lenders.
Businesses can get quick access to up to $25,000 when qualifying for an SBA EIDL. The amount is repaid with proceeds from EIDL.
Private Lender Small Business Loan
Besides government loans, physical and eCommerce businesses can apply for loans from private lenders.
Private lenders usually have faster approval time, but the loans come at higher interest rates. However, if you have good credit and strong business finances, some online lenders may offer you rates comparable to bank loans.
You can apply for private loans from:
- Banks: Both commercial and community banks offer loans to small businesses. Commercial banks have more stringent requirements than community banks.
- Bank lenders backed by the SBA: Some bank lenders offer loans guaranteed by the SBA. Terms and interest rates are usually more attractive because of the SBA guarantee.
- Online lenders: PayPal and Fundera offer quick, short-term loans should you need cash immediately. Online lenders are preferable for fast-paced businesses such as online stores, which require owners to scale up rapidly. For instance, Become or Shopify Capital provide eCommerce funding and loans to expand your online store.
- Peer-to-peer lending websites: Funding Circle and LendingClub connect you to people who offer microloans.
There are also small business loans for specific groups. Some of these grants are not related to pandemic response.
Documents Required for Business Loan
- Personal and business income tax return
- Personal and business bank statements
- Business financial statements:
- Balance sheet
- Income statement
- Business legal documents
- Business and commercial licenses
- Articles of Incorporation
- Business plan (including financial projections)
- Personal identification (including driver’s license and social security number)
Exploring Small Business Grants
The stimulus package for small businesses also includes provisions for small business grants.
Grants are funds given by either private or public entities for a specific purpose. The grant money could be used for research and development or to prepare your business for expansion or start-up.
There are three types of business grants:
- Government grants: State and federal grants are used to fund a worthwhile project. Because the money comes from tax dollars, government grant applications are usually rigorous. Business grants are rare, as the government usually prioritizes projects that deal with economic development, education, science, technology, or cultural affairs.
- Corporate grants: Corporate grants come from private companies. Requirements are less rigorous, but competition is tough.
- Foundational grants. These are private grants from charitable organizations.
If you are unable to get funding through the stimulus package for a small business, you may have better luck obtaining a corporate or foundational grant.
Government Grant: Shuttered Venue Operators (SVOG) Grant Program
The stimulus package for small businesses includes the Shuttered Venue Operators Grant (SVOG). The $15 billion allotment will be distributed by the SBA.
Eligible applicants may qualify for SVOG that equals 45% of their gross earned revenue, with the maximum amount available for a single grant of $10 million.
The grant program applies to entertainment businesses including:
- Live venue, theater, or motion picture operators
- Theatrical producers
- Museums, zoos, or aquariums
- Talent representatives
Government Grant: Small Business Innovation Research Program (SBIR)
Although unrelated to the stimulus package for small businesses, companies engaged in scientific research can seek funding through the Small Business Innovation Research Program (SBIR).
SBIR is targeted at businesses with products in the research and development stage that show promising potential for commercialization.
Like the SBIR, the Small Business Technology Transfer Program (STTR) requires businesses to partner with an accredited research institution to provide them with technical assistance.
Both the SBIR and STTR are highly competitive awards-based programs that help businesses in technological innovation.
Government Grant: Restaurant Revitalization Fund
Restaurants were among the hardest hit during the pandemic. As of December 2020, more than 110,000 restaurants closed down, affecting 2.4 million jobs.
The recently-signed stimulus package for small businesses includes a $28.6 billion fund to provide grants especially for restaurants through the SBA.
The SBA will reserve $5 billion to the smallest independent restaurants and will prioritize minority-, veteran-, and women-owned establishments during the first 21 days of grants. Applications are not yet open but will be announced on the SBA website.
Corporate and Foundational Small Business Grants
Many corporations and nonprofits offer small private small business grants.
The following grant is open to applications:
- National Association for the Self-Employed (NASE) provides up to $4,000 in grants to NASE members.
The following grants are closed, but keep an eye on them for possible future openings:
- FedEx Small Business Grant Contest provided 12 businesses with $250,000 in grants.
- Facebook Small Business Grants provided $100 million in cash grants and ad credits to help online stores in over 30 countries.
Minority-Owned Small Business Grants
During the height of the 2020 pandemic, businesses owned by minority groups declined by up to 41%, compared to just 21% for the general population, according to the National Bureau of Economic Research.
However, there are small business grants available to minority groups. Some of these grants come with business coaching and assistance programs:
- Minority Business Development Agency (MBDA): Under The U.S. Department of Commerce, they offer targeted grants and loans to minorities, including the Entrepreneurship Education Program for Formerly Incarcerated Persons Grant and Minority Business Enterprise Inner City Innovation Hub Grant. Check the website continually for open grant opportunities.
- First Nation Development Institute: In 2020, this organization provided over $43 million in grants to projects that help Hawaiians, Alaskans, and Native Americans.
- Comcast RISE: They offer a $10,000 monetary grant to established businesses in certain cities (Atlanta, Chicago, Detroit, Houston, and Philadelphia).
Woman-Owned Small Business Grants
Women entrepreneurs are among the most underrepresented in American business due to lack of funding.
The following are small business grants for women:
- Amber Grant Foundation: They provide a $10,000 grant each month, with an additional $25,000 grant every December for women entrepreneurs.
- Tory Burch Fellows Program: This program offers a one-year fellowship to new women entrepreneurs. Grant recipients receive business guidance and $5,000.
- Cartier Women’s Initiative: They provide grants from $30,000 to $100,000 to women-run and women-owned businesses with a substantial social or environmental impact.
- Visa IFundWomen: They are currently offering a $10,000 grant and business coaching to 60 Black women-owned businesses across six U.S. cities. Applications are open until April 16, 2021.
Documents Required for Business Grant
Small business grants usually have similar requirements and application processes as loans.
These requirements include:
- Basic business information: Length of time in business, average or monthly income, and number of employees
- Elevator pitch: What the business is about and how the funds will be used
- Business plan: How you plan to succeed
Where To Look for Funding
The following resources will help you look for additional funding opportunities for business success in 2021:
- Grants.gov is the federal government’s landing page for all federal government grants across agencies, including grants for schools and local governments.
- GrantWatch is a paid subscription service that empowers you to access over 25,000 federal, state, local, and privately-funded grants.
- The U.S. Small Business Administration (SBA) is a helpful resource for small businesses. While it mostly discusses loans, a few small business grants are available from time to time.
- Government websites. Federal agencies such as the U.S. Department of Agriculture (USDA), National Institute of Standards and Technology (NIST), Department of Energy (DOE), and the Environmental Protection Agency (EPA) all have pages on their websites that list available small business grants and loans.
- Forbes compiled a list of available loans and grants for selected states.
Funding for Online Stores
eCommerce shops thrived during the pandemic. To keep up with the demand, online stores need e-commerce funding to launch new products, keep up with online marketing, and ensure they’re secure.
Online stores tend to struggle to secure the funding they need. Due to the unique nature of e-commerce, owners may have difficulty applying for loans since banks don’t typically consider online metrics during the loan or grant underwriting process.
Unless the business has a physical store, e-commerce businesses may have to rely on alternative funding options such as credit cards, venture capitalists, or crowdfunding.
Small businesses were among those heavily hit by the 2020 pandemic. Companies affected by forced closures had to take advantage of stimulus packages for small businesses granted by the government and private entities to stay afloat.
These small business grants and loans can be used to pay for business expenses, scale operations, or even put up online stores.
Adapt to the new normal by opening your online store to the world.
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