By now most people have likely heard about the Coronavirus Aid, Relief, and Economic Security (CARES) Act and legislation that was adopted in earlier March 2020. The CARES Act’s purpose is to assist businesses with their ongoing needs in light of the significant economic disruption caused by the Coronavirus
The money earmarked by this Act contains many programs and initiatives designed for small businesses, including new loan programs and changes to existing loan programs, like the Small Business Administration’s Economic Injury Disaster Loan. The following is an overview of the core components of these programs and steps you may need to take to procure these loans.
SBA’s Paycheck Protection Program
The new “Paycheck Protection Program” (PPP) loans allow businesses with less than 500 employees, including sole proprietors, non-profit corporations, cooperatives, and independent contractors, to procure the lesser of $10 million dollars or the average total monthly payments for payroll costs (multiplied by 2.5) calculated during the 1-year period before the loan is made. Payroll costs include salary, wage, vacation, parental, family, medical or sick leave, severance, health care benefits, and local taxes.
The loan comes with a term of up to 10 years and interest at a rate of no more than 4% per annum (with deferred payments up to a year). In addition, Paycheck Protection loans can be used for the following additional purposes: payroll support (including paid sick or medical leave); employee salaries; mortgage, rent and utility payments; insurance premiums; and payment of other debt obligations. It also has a debt forgiveness component if certain thresholds are met.
PPP loans are issued through local lenders, but the application for a PPP loan is available online at the Department of the Treasury website. You can also download a PPP Information Sheet from the website.
SBA’s Economic Injury Disaster Loan Program (EIDL)
The EIDL was amended with Congress’s Coronavirus Preparedness and Response Supplemental Appropriations Act on March 6, 2020. It earmarks approximately 50 billion dollars for all businesses containing less than 500 employees, including sole proprietors, non-profit corporations, cooperatives, and independent contractors. The amendments expand the ways to obtain an EIDL.
Instead of a financial institution, the SBA issues the EIDL loans directly at 3.75 percent interest in amounts up to $2 million and a maturity date of up to 30 years. You can apply for an EIDL online. An EIDL Disaster Application Overview is also available online.
While a business can obtain both loans, it cannot commingle the loans or use them for the same purpose. Oddly, however, a PPP loan can be used to repay an EIDL. EIDL loans will be available until December 31, 2020 while a PPP loan is available until June 30, 2020. A $10,000 emergency advance (within three days of submitting an application) will be paid while an applicant’s loan application is pending.
There are a significant number of other items in the comprehensive legislation related to the coronavirus, including advanced tax credits for paid leave, delay of employer payroll taxes, and net operating loss modifications. These other items are not included in this brief summary, but information can be obtained from various sources.
What you should do now
There are a few things you should do immediately. First, you should contact your banker because the SBA Paycheck Protection Program will be administered by financial institutions. Those funds may be available to existing customers before new customers.
Second, you should consult with your banker and other professional advisors to determine whether your business qualifies for the Paycheck Protection Program and/or the EIDL loans and to determine to what extent, if at all, you might qualify for loan forgiveness.
Third, assemble company documents, such as certificates or articles of incorporation, bylaws, operating agreements, and certificates of good standing. Note that while the Illinois Secretary of State extended the deadline for Annual Report filings, it has also suspended Annual Reports filed by mail. Therefore, if your Annual Report was due in March 2020 or will be due in April 2020, you may have to file online to ensure you are in “good standing.” Finally, gather up all of your businesses’ financial information, including tax returns, payroll, etc.
Use the following link to find other useful information straight from the SBA with other links to assist you with getting started.: