Due to the COVID-19 Pandemic, the United States federal government has passed emergency legislation to provide economic relief for individuals and businesses facing hardship or economic ruin.
On March 27. 2020, the CARES (Coronavirus Aid, Relief, and Economic Security) Act was enacted in an effort to provide immediate relief for those impacted by this crisis. Seven main groups will receive emergency relief: large corporations, hospitals and public health systems, state and local governments, education, the federal safety net, individuals, and small businesses.
A core provision of the CARES Act is to provide guaranteed and federally backed small business loans designed to quickly make funds available to qualifying businesses like yours.
$377 billion has been dedicated to small business relief. These funds can be used to prevent layoffs and business closures while workers are required to remain at home during the COVID-19 outbreak. Companies having 500 or fewer employees that agree to maintain payroll during the outbreak can receive up to 8 weeks of cash-flow assistance, and the portion of loans used to cover payroll, interest on mortgage obligations, rent, and utilities would be forgiven.
We have briefly summarized the two financial relief options appropriate for Small Businesses under the CARES Act. Currently, the entire federal package is under review by the Small Business Association but pending further guidance, there are immediate steps you can take to expedite your application process.
Please note that applications for loans from additional outside sources may impact your eligibility and federal rules or limitations may apply. Each company’s circumstances may affect their available options, please seek personalized advice from a qualified legal professional before taking action.
Choose which option is best for your business
Option 1: Economic Injury Disaster Loan (EIDL)
The Economic Injury Disaster Loan (EIDL) is an emergency program offering small business loans of up to $2M and includes grants for eligible businesses to receive a cash advance of up to $10,000 that does not require repayment. An EIDL is designed for smaller businesses requiring less cash, with loans available up to $2M per business.
Consider an EIDL if your company has less than $65K in annual operating costs, as the advance may be greater than the loan forgiveness. Businesses can qualify for up to $200K without a personal guarantee or collateral. For businesses needing immediate cash, the 3-day $10,000 disbursement can help to provide sick leave, meet payroll, and finance debt.
If a company has outside investors or affiliates, certain restrictions may apply, but any business in the 50 states that has been adversely impacted by the COVID-19 crisis and meets the following criteria is eligible for a $10,000 grant:
The business must employ 500 or fewer individuals
The business must have been in operation since at least Jan. 31, 2020
How to apply for an EIDL
Visit the SBA’s portal to complete an online grant application, which should only take about 5 minutes. After completing the application, allow about 3 weeks for the loan approval and payment process – but the $10,000 grant will be administered within 3 days of submitting. Additional loan relief will be offered on a first-come, first-serve basis, and due to the 50-state nationwide demand, please expect longer wait times for loans.
Organizing business documentation
A business credit score and a self-certification form are all that is needed to apply. Note: a newly created SBA self-certification form is underway but is unavailable, however applications can still be made using the existing standard form. No tax returns are required.
Option 2: Paycheck Protection Loan (PPL)
The Paycheck Protection Loan (PPL) program will forgive 8 weeks of operating expenses for approved business owners who agree to maintain payroll through the end of June 2020. Loan amounts spent to cover payroll, utilities, rent, or mortgage payments and its associated interest can be forgiven, and any other payments can be deferred by 6 months.
Consider the PPL if your business is a medium-sized company needing more cash, as relief from the PPL program only goes up to the lesser of $10M or 250% of monthly payroll expenses per business, including certain benefits.
Any business with fewer than 500 employees that has been in operation since February 15, 2020, and also sole proprietors, self-employed, and “gig economy” individuals with more than $65K in annual operating costs are eligible if they meet the following criteria:
• The business must have at least $65K in annual operating expenses that will be covered by the loan to receive 8 weeks or more of reimbursement equal to $10K
• The business must maintain its payroll – the portion which will be eligible for loan forgiveness– until at least June 30, 2020
• The business will be permitted to correct past payroll reductions by re-hiring workers in order to receive full loan forgiveness.
How to apply for the PPL
The current application process is quite complicated, but the SBA has been given up to 15 days to establish new rules that are likely to reduce the difficulty and shorten the time needed to apply. We recommend speaking to an SBA-approved lender to understand and meet the requirements until such time the application process becomes less difficult.
Apply directly through the SBA or with any number of SBA-approved lenders, including J.P. Morgan and/or Wells Fargo. It is expected that the number of available lenders will increase to meet the demand. The PPL application deadline is June 30, 2020.
Organizing application documentation
The current PPL application process requires extensive paperwork. Historically, SBA loans require about 45 days. The CARES Act is taking swift action to remove barriers to relief, including those allowing approved lenders to expedite the application process without going back to the SBA for approval. The SBA is also bringing on new lending partners to assist with speedier fund dispersal. In the meantime, make ready the following documents before applying: