Clients and friends,
The CARES (Coronavirus Aid, Relief, and Economic Security) was signed into law by the President, H.R. 748 last Friday, March 27, 2020.
Are you confused and overwhelmed with all the literature being provided and lack of clarity on the best way to obtain financing for your small business as a result of the slow down/shut down to the US economy that was caused by COVID-19?
You aren’t the only one.
The following narrative is subject to change as details are coming out each day with amendments and clarifications on specific items.
CARES ACT PPP vs. Economic Disaster Loans
The CARES Act, as it relates to government financial assistance programs:
- Introduces the PPP;
- Continues the use of the SBA’s Economic Injury Disaster Loan (“EIDL”) program.
Here is a high-level summary comparing the two available programs for your small business, and yes, you can apply for both. More on that later.
| PPP | EIDL | |
|---|---|---|
| Appropriated Amount (specifically for COVID-19) |
$350 billion | $10billion |
| Maximum Loan | $10,000,000 or 250% of the average monthly payroll expenses for the preceding one-year period, whichever is less |
$12,000,000 and maximum unsecured loan amount is $25000 |
| Loan Originators | Made by local lenders (i.e., banks, credit unions, etc) with delegated authority under the SBA 7(a) guarantee program and are responsible for qualifying borrowers |
Loan funds come directly from the U.S. Treasury but applied for through the SBA website: https://covid19relief.sba.gov/#/ |
| Interest Rate | 4% Maximum for any portion not “forgiven” |
|
| Term | Up to 10 years | 30 years |
| Borrower Collateral + Personal Guarantees | Eliminated | Business assets and other collateral of 20% plus owners |
| Other Features |
|
Streamlined online application provides an IMMEDIATE $10,000 advance/grant: https://covid19relief.sba.gov/#/ |
PPP Specifics
This program would provide cash-flow assistance through 100% federally guaranteed loans to employers who maintain their payroll during this emergency. If employers maintain their payroll headcount, the loans will be forgiven, which will 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 eight 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 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.
EIDL Specifics
The EIDL can provide up to $2 million of financial assistance (actual loan amounts are based on amount of economic injury) to small businesses or private, non-profit organizations that suffer substantial economic injury as a result of the declared disaster, regardless of whether the applicant sustained physical damage.
An EIDL can help you meet necessary financial obligations that your business or private non-profit organization could have met had the disaster not occurred. It provides relief from economic injury caused directly by the disaster and permits you to maintain a reasonable working capital position during the period affected by the disaster. EIDLs do not replace lost sales or revenue.
Any business is eligible including agricultural cooperatives, aquaculture businesses and most private, nonprofit organizations with the following exceptions:
- Agricultural Enterprises: If the primary activity of the business (including its affiliates) is as defined in Section 18(b)(1) of the Small Business Act
- Religious or Faith-based Organizations
- Charitable Organizations
- Gambling Concerns
- Casinos & Racetracks
- Other eligibility information can be found here (PDF)
Summary + Actions
Both the PPP and EIDLs provide financial relief as a result of the COVID-19 Pandemic. You can apply for both loans, but the loans cannot cover the same needs or cannot provide funds for the same expenses. Stated another way … the Act allows a company that already has an EIDL to apply for a Paycheck Protection Loan if it will not duplicate the applicant’s use of the EIDL.
We also understand that an EIDL can be refinanced into a PPP: 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.
The applicant should get its books and records updated as soon as possible as the EIDLs require typical underwriting, which can be found: https://www.sba.gov/disaster/apply-for-disaster-loan/index.html
The process and procedure for the PPP application is still being developed by banks with guidance from the SBA and should be completed sometime this week.
See the attached PDFs for further details, illustrations and Q&A. The PDF published by the US Chamber of Commerce focuses on the details for the PPP while the PDF from the US Senate Committee on Small Business addresses both the PPP and EIDLs as well as some other financing options.
Will the funding be enough? Probably not. Economists Michael Strain of the American Enterprise Institute and Glenn Hubbard of Columbia Business School estimate the cost of replacing lost revenue for affected firms for three months to be $1.2 trillion. However, the CARES Act will no doubt help many business survive a short-term crisis.
Please click on the following links to learn more:
Paycheck Protection Program
Senate Small Business Owners Guide to the CARES Act
$10,000 Advance + EIDL
EIDL Step-by-step Application Process
PPP Overview
Best regards,
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