More on the EIDL program and the Paycheck Protection Program

Let’s cut to the chase and start parsing through the somewhat confusing bundle of aid offered to small business and non-profits as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (by the way, a good start to simplifying these things would be to stop working so hard for a soundbite friendly acronym).

On top of the already existing Economic Injury Disaster Loans (EIDL) we spoke of before, you now have other options and a modification of the EIDL program to consider. Below are highlights of these programs; a good place to look for further detail is here: US Senate Comittee of Small Business & Entrepreneurship Guide to the CARES Act .

The Paycheck Protection Program (PPP)

• Purpose: Provide cash-flow assistance though fully federally guaranteed loans to employers who maintain their payroll through the crisis.
• Who’s eligible? Small businesses and nonprofits in operation as of 15 February 2020 with fewer than 500 employees.
• Maximum size:
  • 250% of average monthly payroll costs for the 1-year period prior to the origination of the loan. (There is an exception for seasonal employers, but this must be agreed with the lender.)
  • If you have taken an EIDL out in the period of 15 February to 30 June 2020, you can refinance that loan into a PPP and add on the above payroll amounts
• Payroll is defined broadly to include: compensation, vacation, sick leave, health care benefits, retirement benefits and state or local payroll taxes. There is a limit at $100,000 per person on compensation. Other limits apply.
• What are allowable uses of the loan? Payroll, continuation of heath and leave benefits, mortgage interest, rent, utilities, interest on pre-existing debt.
• Terms? Maximum maturity of 10 years, 4% interest rate cap, no loan or prepayment fees. Application fees to be capped.
• Forgiveness?(!): You will be able to apply for forgiveness through your lender and will need to document the maintenance of employees and pay rates through June 2020 and other uses of the proceeds.
  • Forgiveness limit is equal to the sum of payroll costs + mortgage interest + rent + utility cost for the 8 weeks following the loan is granted.
• PPP and other SBA loans: You can apply for PPP loans and other SBA loans such as the EIDL, but the PPP loan and the EIDL can NOT be for the same purpose. For example, you can not use the EIDL to cover payroll for the same 8 weeks as the PPP covers.
• SPECIAL NOTE: You must apply for the PPP through an approved SBA lender. All current SBA 7(a) lenders are eligible and others may be appointed. The EIDL is granted and funded directly by the SBA.

Emergency Economic Injury Grants

• The CARES Act modified the EIDL process to provide for a emergency advance of up to $10,000 within 3-days of application for an EIDL.
• You MUST first apply for the EIDL and THEN request the advance. The advance does not need to be repaid under any circumstance even if your EIDL is denied[1].
• Use: The grant may be used to maintain payroll, pay for sick leave, and meet obligations necessary to stay in business such as debt, rent, mortgages, and increased production costs.
• Eligibility: Same eligibility as EIDL and have been in operation since 31 January 2020

Modification to the EIDL: The credit elsewhere test is waived, so even if you have other sources of borrowing, you may still qualify for the EIDL.

Small Business Debt Relief Program: This program will provide immediate relief to small businesses with non-disaster SBA loans, in particular 7(a), 504, and microloans. Under it, SBA will cover all loan payments on these SBA loans, including principal, interest, and fees, for six months. This relief will also be available to new borrowers who take out loans within six months of the Act becoming law.

Assistance: Things have moved fast and you may need assistance to navigate these matters. A good place to start is here: https://www.sba.gov/local-assistance/find/

Need help getting your finances organized to apply for funding?  Send us a message and we’ll be in touch!

 

[1] https://www.schatz.senate.gov/coronavirus/small-businesses/sba-economic-injury-disaster-loan-and-emergency-grant