The CARES Act: Loan Program Options for Small Businesses to Consider
On March 27, Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act to alleviate the economic impact of COVID-19 on both individuals and businesses. The legislation provides economic assistance to small businesses through several Small Business Administration (SBA) program options.
Paycheck Protection Program Loans
The Paycheck Protection Program prioritizes Americans employed by small businesses by authorizing up to $349 billion toward job retention and certain other expenses. The program provides qualified small businesses with loans of up to $10 million. The program is retroactive to February 15, 2020 to help bring workers who may have already been laid off back onto payrolls. Loans are available through June 30, 2020.
Who is Eligible?
Qualifying businesses in all U.S. states and territories:
- Businesses, nwith 500 or fewer employees
- Certain businesses with greater than 500 employees in certain industries, including the hotel and food industry
- Sole proprietors and independent contractors
- Approved franchises listed on the SBA’s registry
- Businesses receiving funding through a Small Business Investment Company
Guidelines for Loans
- Loans are up to two months of average monthly payroll costs from the last year plus an additional 25%
- Maximum loan amount up to $10 million
- Loans will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent and utilities however at least 75% of the forgiven amount must have been used for payroll
- Payroll costs must not exceed $100,000 of annual compensation per employee
- Initial loans have a maturity of 2 years and an interest rate of 1% (loans past the initial term have interest rates capped at 4%)
- No collateral or personal guarantees are required
- First payment deferred for six months
- No borrower or lender fees payable to SBA as before
How to Apply
Small businesses and sole proprietors can apply starting April 3. Independent contractors and self-employed workers can apply starting on April 10.
Applications can be made through any existing SBA lender or federally insured depository institution or credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. Visit www.sba.gov for a list of SBA lenders.
For more information on the program including forms and the interim final rule, please visit the U.S. Department Treasury site page. The rules and details remain in flux, so please check back often for additional changes and updates.
Economic Injury Disaster Loans and Loan Advances
The CARES Act expands the Small Business Administration’s long-standing Economic Injury Disaster Loan Program (EIDL) to offer financial support to more businesses experiencing reduced revenue due to the pandemic. Historically, the SBA has offered disaster relief assistance to businesses, homeowners and renters in specific areas where federally declared disasters occurred however, companies in all states and U.S. territories can now apply.
Who is Eligible?
- Businesses with fewer than 500 employees
- Cooperatives, ESOPs, and tribal small businesses with fewer than 500 employees
- Sole proprietors, independent contractors and self-employed persons
- Nonprofits and veterans organizations
Guidelines for Loan Advances
- Loans are available up to $2 million to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact
- The interest rate is 3.75% for small businesses and 2.75% for non-profits
- Long-term repayments can be up to a maximum of 30 years and are determined on a case by case basis
- Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay
- Payments on COVID-19 EIDL loans are deferred for one year
- Borrowers do not have to prove they could not get credit elsewhere
How to Apply
The SBA offers additional information and details on the SBA site. Unlike the PPP loans, the EIDL submissions are made to SBA, not the banks directly.
Determining the Best Option for Your Business
Every business should consider the various assistance programs available to determine which may work best for both short- and long-term business planning. Remember that many states are also offering loans, grants and incentive programs. Consider all qualification criteria, terms and repayment options.
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