The CARES Act And COVID-19-Related Loans
Payment Protection Program (PPP) Loans
The PPP provides cash-flow assistance through 100% federally guaranteed loans to employers who maintain their payroll during this emergency.
If employers maintain their payroll, the loans would be forgiven, which would help workers remain employed, as well as help affected small businesses and our economy to snap back quicker after the crisis.
PPP has a host of attractive features, such as forgiveness of up to 8 weeks of payroll based on employee retention and salary levels, no SBA fees and at least six months of deferral with maximum deferrals of up to a year. Small businesses and other eligible entities will be able to apply if they were harmed by COVID-19 between February 15, 2020, and June 30, 2020. This program is set to be retroactive to February 15, 2020, in order to help bring workers who may have already been laid off back onto payrolls. Loans are available through June 30, 2020.
Information from the Treasury Department: https://home.treasury.gov/coronavirus
Where can I get a PPP loan from?
All current SBA 7(a) lenders are eligible lenders for PPP. The Department of the Treasury will also be in charge of authorizing new lenders, including nonbank lenders, to help meet the needs of small-business owners.
The SBA website indicates a listing of lenders at: https://www.sba.gov/article/2020/mar/02/100-most-active-sba-7a-lenders
The SBA website also lists local assistance at: https://www.sba.gov/local-assistance/find/, which includes additional lenders and other assistance.
How is the loan size determined?
- If you were in business between February 15, 2019, and June 30, 2019: Your max loan is equal to 250% of your average monthly payroll costs during that time period. If your business employs seasonal workers, you can opt to choose March 1, 2019, as your time period start date.
- If you were not in business between February 15, 2019, and June 30, 2019: Your max loan is equal to 250% of your average monthly payroll costs between January 1, 2020 and February 29, 2020.
- If you took out an Economic Injury Disaster Loan (EIDL) between February 15, 2020, and June 30, 2020, and you want to refinance that loan into a PPP loan, you would add the outstanding loan amount to the payroll sum.
What costs are eligible for payroll?
- Compensation (salary, wage, commission, or similar compensation, payment of cash tip or equivalent)
- Payment for vacation, parental, family, medical or sick leave
- Allowance for dismissal or separation
- Payment required for the provisions of group health care benefits, including insurance premiums
- Payment of any retirement benefit
- Payment of state or local tax assessed on the compensation of employees
What costs are not eligible for payroll?
- Employee/owner compensation over $100,000
- Taxes imposed or withheld under chapters 21, 22 and 24 of the IRS code
- Compensation of employees whose principal place of residence is outside of the U.S.
- Qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act
What are allowable uses of loan proceeds?
Payroll costs (as noted above)
- Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
- Employee salaries, commissions or similar compensations (see exclusions above)
- Payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation)
- Rent (including rent under a lease agreement)
- Interest on any other debt obligations that were incurred before the covered period
What are the loan term, interest rate and fees?
The maximum term is 10 years, the maximum interest rate is 4%, zero loan fees, zero prepayment fee (SBA will establish application fees caps for lenders that charge).
How is the forgiveness amount calculated?
Forgiveness on a covered loan is equal to the sum of the following payroll costs incurred during the covered 8-week period compared to the previous year or time period, proportionate to maintaining employees and wages (excluding compensation over $100,000):
- Payroll costs plus any payment of interest on any covered mortgage obligation (not including any prepayment or payment of principal on a covered mortgage obligation) plus any payment on any covered rent obligation plus any covered utility payment
How do I get forgiveness on my PPP loan?
You must apply through your lender for forgiveness on your loan.
In this application, you must include:
- Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and state income, payroll and unemployment insurance filings
- Documentation verifying payments on covered mortgage obligations, lease obligations and utilities
- Certification from a representative of your business or organization that is authorized to certify that the documentation provided is true and that the amount that is being forgiven was used in accordance with the program’s guidelines for use
What happens after the forgiveness period?
Any loan amounts not forgiven at the end of one year is carried forward as an ongoing loan with max terms of 10 years, at 4% max interest. Principal and interest will continue to be deferred, for a total of 6 months to a year after disbursement of the loan. The clock does not start again.
Economic Injury Disaster Loans & Emergency Economic Injury Grants
These grants provide an emergency advance of up to $10,000 to small businesses and private nonprofits harmed by COVID-19 within three days of applying for an SBA Economic Injury Disaster Loan (EIDL). To access the advance, you first apply for an EIDL and then request the advance. The advance does not need to be repaid under any circumstance and may be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments.
Frequently Asked Questions
What is an EIDL, and what is it used for?
EIDLs are lower interest loans of up to $2 million, with principal and interest deferment at the administrator’s discretion, that are available to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses.
Who is eligible for an EIDL?
Those eligible are the following:
- Businesses with 500 or fewer employees
- Sole proprietorships, with or without employees
- Independent contractors
- Cooperatives and employee-owned businesses
- Tribal small businesses
Small-business concerns and small agricultural cooperatives that meet the applicable size standard for SBA are also eligible, as well as most private nonprofits of any size. See below for more info on size standards.
Who is eligible for an Emergency Economic Injury Grant?
Those eligible for an EIDL and who have been in operation since January 31, 2020, when the public health crisis was announced are eligible for an Emergency Economic Injury Grant.
How long are Emergency Economic Injury Grants available?
January 31, 2020 – December 31, 2020. The grants are backdated to January 31, 2020, to allow those who have already applied for EIDLs to be eligible and to also receive a grant.
If I get an EIDL and/or an Emergency Economic Injury Grant, can I get a PPP loan?
Whether you’ve already received an EIDL unrelated to COVID-19 or you receive a COVID-19-related EIDL and/or emergency grant between January 31, 2020, and June 30, 2020, you may also apply for a PPP loan. If you ultimately receive a PPP loan or refinance an EIDL into a PPP loan, any advance amount received under the Emergency Economic Injury Grant Program would be subtracted from the amount forgiven in the PPP. However, you cannot use your EIDL for the same purpose as your PPP loan. For example, if you use your EIDL to cover payroll for certain workers in April, you cannot use PPP for payroll for those same workers in April, although you could use it for payroll in March or for different workers in April.
How do I know if my business is a small business?
Please visit https://www.sba.gov/size-standards/ to find out if your business meets SBA’s small-business size standards. You will need the 6-digit North American Industry Classification Code for your business and your business’s three-year average annual revenue.
How do I apply for an economic injury disaster loan?
To apply for an EIDL online, please visit https://disasterloan.sba.gov/ela/. Your SBA District Office is an important resource when applying for SBA assistance.
I am unfamiliar with the EIDL process. Can anyone help me apply?
Yes, SBA resource partners are available to help guide you through the EIDL application process. You can find the nearest Small Business Development Center (SBDC), Women’s Business Center or SCORE mentorship chapter at https://www.sba.gov/localassistance/find/.
Businesses financially impacted as a direct result of the coronavirus since Jan. 31 may qualify for loans. Due to increased volumes, it could take up to eight weeks in some cases.
What businesses can apply?
The following businesses can apply: businesses with fewer than 500 employees (with some exceptions); businesses that meet the SBA’s industry-based size standard requirements for the applicable NAICS code, which are based either on the number of employees or annual receipts (you can see if your business credit reports list your NAICS code by pulling your business credit reports for free on Nav); not-for-profits (except those receiving Medicaid funds); veterans organizations, franchises and hospitality businesses (NAICS code 72) with multiple locations, even if they have more than 500 employees, may be exempted on a per location basis as well as any businesses receiving financial assistance from a Small Business Investment Company (SBIC).
What if I need money immediately?
The loans covered in this bill will be treated differently than the Economic Injury Disaster Loans, including a grant for those who apply for the disaster loans.
The Economic Injury Disaster bill establishes an emergency grant to allow eligible businesses that apply for an Economic Injury Disaster Loan (EIDL loan) to request an advance on that loan, of not more than $10,000, which the SBA must distribute within three days. The SBA will not require applicants to repay any advance payments, even if they subsequently are denied an EIDL loan.
In other words, small businesses that are eligible to apply for the Economic Injury Disaster Loan will be able, within three days, to access up to $10,000 without a requirement to make payment, even if their disaster loan application is denied.
What can I use my loan for?
These SBA loans can be used for working capital, to pay fixed debts, payroll, accounts payable, inventory and employee sick leave. They may also be used to make interest payments on other debt that was incurred before the February 15, 2020, deadline.
How Much Can You Apply For?
The maximum loan amount will be the lesser of $10 million and 2.5 times the average monthly payroll costs for the one-year period before the loan is made, with consideration for any seasonality-based adjustments or a shorter period for businesses less than a year old.
The maximum loan amount for an SBA Express Loan has been raised from $350,000 to $1 million through December 30, 2020. In 2021, the maximum loan amount will drop back to $350,000.
Three ways to apply for SBA economic injury loans
There are three ways to apply for an SBA loan. Apply online (disasterloan.sba.gov/ela or ask questions via [email protected]), apply in person at a disaster center or apply by mail. Call the SBA Customer Service Center at 800-659-2955.
What information is required for my application?
- Collateral is no longer required on SBA disaster loans up to $25,000. However, collateral must be provided for loans from $25,000 to $2 million after such loans are processed. Collateral can include real property, machinery and equipment as well as inventory.
- Disaster loans can now be processed without initially providing IRS tax records, ownership records, debt schedules as well as income and expenses, but these records will be required at a later date, determined by loan officers on a case-by-case basis.
What are the terms of these loans?
- The disaster loan interest rate for businesses is 3.75% and 2.75% for private nonprofits; interest payments will be deferred for the period of one year.
- All loans are for terms up to 10 years, with some adjustments made for cash flows. There is no penalty for early repayment.
Will these loans be forgivable?
The loan will be eligible for forgiveness in an amount (not to exceed the principal amount of the loan) equal to the sum of: (i) payroll costs, (ii) rent, (iii) utilities payments, and (iv) interest payments on secured debt obligations (including mortgages) incurred in the ordinary course of business prior to February 15, 2020, in each case, paid during the eight-week period commencing on the date of origination of the loan. The amount of loan forgiveness will be reduced by any reductions in employee wages (in excess of 25% for any employee) or a reduction in the number of employees during the covered period in accordance with the terms of the program. Borrowers will not recognize any cancellation of indebtedness income upon forgiveness of any portion of the loan for tax purposes. A borrower will be required to submit a fulsome application in support of loan forgiveness directly to the lender. The lender will make a determination on the application (subject to a statutory safe harbor) within 60 days of receipt; within 90 days after the loan forgiveness amount has been determined, the SBA will reimburse the lender directly for the principal amount of any forgiven debt, plus interest accrued through the date of repayment. SBA will issue additional implementation guidance and regulations regarding the loan forgiveness process within 30 days after enactment of the CARES Act.
DISCLAIMER – The information posted on this page is the information current to the time of posting. The information is changing on a daily basis, and we will do our best to update with the current information; however, it is best to check the official sources for most up-to-date current information.