The “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act” was recently passed by Congress and signed into law by the President. This law provides $2 trillion in aid to support individuals and businesses who have been negatively impacted by the COVID-19 global pandemic.
The four major programs introduced to support small businesses affected by COVID-19 are the “Paycheck Protection Program” (“PPP”); the “Economic Injury Disaster Loan Emergency Advance” (“EIDL” Loan Advance); SBA Express Bridge Loans; and SBA Debt Relief.
These programs are administered by the SBA (“U.S. Small Business Administration”) and businesses must apply through the SBA to qualify.
Paycheck Protection Program
The PPP is a loan designed to provide small businesses with an incentive to keep their workers on the payroll. This program is outlined in §1102 of the CARES Act. Under this program, small businesses who qualify can have their loan forgiven if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. Further, to qualify for full forgiveness, the loan must be primarily used for payroll (at least 75%). If employees have already been laid off, businesses may still be eligible if they quickly rehire those employees. Factors that weigh into forgiveness of the loan are employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, if salaries and wages decrease, or if less than 75% of the loan has been used to payroll.
Any small business with less than 500 employees (including sole proprietorships, independent contracts, and self-employed persons), 501(c)(3) private non-profit organizations, or 501(c)(19) veterans organizations who have been affected by COVID-19 may apply for a PPP loan. Certain businesses with more than 500 employees may still qualify. Please check the SBA website for additional guidance (https://www.sba.gov/document/support–table-size-standards).
Under the PPP, small businesses can receive a loan of 2.5x their average monthly payroll expenses of the 1-year period prior to the date the loan was made, with a cap at $10,000,000.
No collateral or personal guaranties are required to qualify for this loan. Further, loan payments will be deferred for six months. Any unpaid portion of the loan will have an interest rate of no more than 4%, and a maturity of no more than 10 years. The SBA website says that the loan will have a maturity of 2 years and an interest rate of 1%, but the CARES Act itself says no more than 4% and no more than 10 years.
Economic Injury Disaster Loan Emergency Advance
The EILD program has been expanded by §1110 of the CARES Act. The major change is the introduction of the Economic Injury Disaster Loan Emergency Advance. Qualifying small business owners are eligible to apply for an Economic Injury Disaster Loan Advance up to $10,000, which will not have to be repaid. Any small business with less than 500 employees (including sole proprietorships, independent contracts, and self-employed persons), 501(c)(3) private non-profit organizations, or 501(c)(19) veterans organizations who have been affected by COVID-19 may apply for this loan advance.
Other expansions of the EIDL program include waiving personal guarantees on advances and loans under $200,000 that are made before 12/31/2020; waiving the requirement that the applicant must have been in business for at least 1-year prior to the loan; and waiving the requirement that the applicant can not find credit elsewhere.
SBA Express Bridge Loans
This bridge loan is designed for qualifying small businesses to access up to $25,000 and bridge the gap while applying for an EIDL loan. This loan will be repaid in full or in part by the proceeds from the EIDL loan.
SBA Debt Relief
The SBA will automatically pay the principal, interest, and feeds of current 7(a), 504, and microloans for 6 months. Additionally, the SBA will automatically pay the principal, interest, and feeds of new 7(a), 504, and microloans issued prior to September 27, 2020. Current SBA Serviced Disaster (Home and Business) Loans in “regular servicing” status on March 1, 2020, will be provided automatic deferment through December 31, 2020. However, interest will still accrue on the loan.
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