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The US $2T CARES Act: A Lifeline for Small Businesses amid COVID-19

Update as of April 24, 2020

  • A new $484 billion coronavirus relief package has been signed on Thursday, April 23, 2020.
  • The new bill contains about $320 billion for the Paycheck Protection Program (PPP) and $60 billion for the SBA’s Economic Injury Disaster Loan (EIDL) program. It’s also providing about $75 billion for hospitals and $25 billion for coronavirus testing.
  • EIDL and PPP loans are processed on a first-come, first-served basis.
  • The $360 billion funding from the first bill has depleted within two weeks since it opened last March 27, 2020.
  • Lawmakers are still expected to put together a larger package to follow the CARES Act.
On March 27, 2020, the largest economic recovery package in American history has been signed into law. The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 will allocate $350 billion for small businesses affected by the pandemic through loan programs: an expanded Economic Injury Disaster Loan (EIDL) program and the Paycheck Protection Program (PPP).

The PPP loans aim to provide the liquidity that small businesses need to support employees during the pandemic.

The EIDL program will help small businesses recover for broader economic injury related to the outbreak. Borrowers can request a cash grant of $10,000 which will be released 3 days after their application. The advanced funds do not need to be returned in the event the EIDL is denied.

Our table can help you determine which Small Business Administration (SBA) loan will fit your business needs.
Paycheck Protection Program (PPP) Economic Injury Disaster Loan (EIDL)
Loan Period February 15, 2020 to June 30, 2020 January 31, 2020 to December 31, 2020
Loan Term Up to 2 years for the unforgiven portion of the loan indicated by the SBA Up to 30 years
Maximum Loan Amount $10 million $2 million
Interest Not to exceed 1% Not to exceed 3.75% for businesses
Not to exceed 2.75% for non-profits
Eligible Borrowers
  • Any small business, private or non-profit, veterans service group, or food and hospitality businesses with less than 500 employees or meets SBA size standards.
  • Businesses in operation as of Feburary 15, 2020.
  • Self-employed individuals
  • Independent contractors
  • Sole proprietorships
  • Any small business, private or non-profit with less than 500 employees or meets SBA size standard
  • Self-employed individuals
  • Independent contractors
  • Sole proprietorships
Loan Usage Payroll except for compensation in excess of $100,000, mortgage interest, rent, utility expenses, and pre-existing loans. Fixed debts, payroll, working capital, inventory, accounts payable, rent, utilities and other operating expenses that cannot be paid because of the disaster’s impact.
Application Process Apply through SBA-approved banks and lenders. Apply directly through SBA's website.
Debt Forgiveness Loan forgiveness may be applied to 8 weeks' worth of funds allocated for payroll cost, mortgage interest, rent, and utility expenses incurred after receiving funding.

The forgiven amount may be reduced in proportion to any employee or payroll reduction during the 8-week period. employees or 25% reduction in payroll on June 30, 2020 compared to pre-February 15, 2020 levels. 		Loan forgiveness may only be applied to the $10,000 emergency cash grant.,The cash grants will also be credited towards the maximum forgivable amount under any PPP loan.
Personal Guarantee No required personal guarantee No required personal guarantee for loans below $200,000.
Collateral No collateral required Collateral may be required for loans exceeding $25,000

Here are some of the most pressing questions and answers about these loans:

Q:
Can I apply for both loans?

A: Yes, you can apply for both a PPP and an EIDL loan, provided that you don’t use both loans for the same purpose. For example, if you decide to apply for a PPP loan and use those funds for employee payroll, your EIDL funds should not be used on the same expenses. Additionally, if you are able to secure a PPP loan, the $10,000 cash grant from EIDL will be subtracted from the forgiveness amount.

Q:
Who is eligible to apply for these loans?

A:
  • Businesses, nonprofit, and veterans service organizations with less than 500 employees, with certain exceptions; and - were operational as of January 30, 2020 (for EIDL) and February 15, 2020 or earlier (for PPP) - can show proof of payment for employee salaries, payroll taxes, or independent contractor fees.
  • Businesses in the food and hospitality industry with more than one location who employ less than 500 employees per location.
  • Self-employed and gig workers, including ride-sharing company drivers.
  • The 500-employee threshold includes all statuses: full-time, part-time, etc.

Q:
Will SBA provide more information on these loans?

A: Yes, SBA will continue to provide further guidance in the coming weeks, in particular the affiliation rules and forgiveness of loans. They are also required to release guidance on payment deferrals within 30 days of enactments of the CARES Act. Additionally, the Senate has also recommended lenders to prioritize loans for small businesses and entities in underserved and rural markets, including veterans and members of the military community, small business concerns owned and controlled by socially and economically disadvantaged individuals, women and businesses in operation for less than two years.

Q:
Is there other help available?

A: You can find more information about this forgivable loan program at SBA.gov.

Paycheck Protection Program (PPP)

Q:
How to apply?

A:
  • Through banks, credit unions, and private lenders approved to issue 7(a) small business loans.
  • You can apply to more than 1,800 SBA 7(a) banks.
  • There are plans from the Treasury Department to roll out new regulations that will make it possible for almost all FDIC-insured banks to release SBA loans.
  • Loan applications may be processed beginning April 3, 2020.

Q:
What are the loan requirements?

A:
  • Borrowers are advised to prepare documentation of their business operating expenses and revenue.
  • PPP loans will require the accomplished application form and may require other documentation for business eligibility.

Q:
What can I use the PPP funds for?

A:
  • PPP loans are intended to encourage businesses to rehire and keep employees by paying allowable payroll costs, costs related to the continuation of group healthcare benefits during periods of paid sick, medical or family leave, insurance premiums, interest on mortgage obligations (but not principal payments), rent (including utilities), interest on debt incurred before February 15, 2020. Additionally, the SBA has indicated that at least 75% of the forgiven amount needs to be spent on payroll costs only. The loan proceeds may not be used to pay salaries over US$100,000.
  • If you are applying for both PPP and EIDL loans, each should be used to cover different expenses.

Q:
How much money can be taken out for a loan?

A:
  • PPP loan borrowers can receive maximum of $10 million.
  • For PPP, lenders are instructed to use a formula that takes into account how much the business previously spent on payroll expenses to determine the appropriate loan amount
  • PPP borrowers can receive up to 2.5 times the average monthly payroll for 12 months before the date the loan is made. For seasonal business, you can receive up to 2.5 the average total monthly payments for payroll costs starting Feb. 15, 2019 or March 1, 2019 (decided by the loan recipient) and ending June 30, 2019. Compensation exceeding $100,000, payroll and income taxes are excluded.

Q:
Can payments be deferred?

A: PPP loan recipients may defer payment of remaining principal, interest and fee balances for six months following the date of disbursement of the loan. However, interest will continue to accrue on PPP loans during this six-month deferment.

Q:
What’s the maturity and interest rates?

A: PPP loans mature no later than two years after issuance and have a maximum interest rate of 1%.

Q:
Loan Forgiveness. What if the borrower is unable to repay the loan?

A:
  • PPP loan forgiveness is offered for businesses that retain employees or rehire those that had been laid off during the outbreak. Loan forgiveness can be applied to portions of the loan spent on payroll, rent payment, utilities, and mortgage expenses incurred within an 8-week period since the start of the loan’s origination date.
  • Loan forgiveness for PPP will be reduced if borrowers reduce their number of employees and decrease salaries and wages by more than 25% for any employee.
  • Businesses with PPP loans have until June 30, 2020 to reinstate employee numbers or salaries that changed between Feb. 15, 2020 and April 26, 2020 and maintain eligibility for loan forgiveness

Q:
How can do I request for loan forgiveness?

A: PPP loans are due in 2 years. You may submit the request to your lender. You will need to include certified documents that verify your payments such number of employees and individual rates, mortgage, lease, and utility obligations. Lenders are required to make a decision on the forgiveness within 60 days.

Economic Injury Disaster Loan (EIDL)

Q:
How to apply?

A:

Q:
What are the loan requirements?

A: EIDL loans may be approved based solely on the applicant’s credit score. Loans smaller than $200,000 may be approved without a personal guarantee and collaterals.

Q:
What can I use the EIDL loan for?

A:
  • The EIDL loan can be used for working capital (including fixed debts, payroll, accounts payable and other bills that cannot be paid because of the COVID-19 impact). The loan may not be used for refinancing of long-term debt, expanding facilities, paying dividends or bonuses, or relocation.
  • If you are applying for both PPP and EIDL loans, each should be used to cover different expenses.

Q:
How much money can be taken out for a loan?

A: EIDL loan borrowers can receive up to $2 million. The amount is based on the amount of economic injury.

Q:
Can payments be deferred?

A: EIDL borrowers may defer payment of remaining principal, interest and fee balances for at least six months and up to one year after any loan forgiveness.

Q:
What’s the maturity and interest rates?

A: EIDL loans have variable maturity dates and have a maximum interest rate of 4%.

Q:
Loan Forgiveness. What if the borrower is unable to repay the loan?

A: EIDL loan offers a $10,000 emergency grant that does not have to be repaid as long as the funds are used business obligations that cannot be fulfilled due to loss of revenue from COVID-19.

Additional Resources:

Lenders that do not require an existing account

You can also search for a nearby lender eligible to issue a PPP loan on the SBA website.
Link: https://www.sba.gov/partners/lenders/microloan-program/list-lenders
Disclaimer:
NextDayFlyers is not associated with any of the organizations listed above. This information has been gathered from resources available to us at the time. The compiled material is for general informational purposes only and not intended to provide business or financial advice. We recommend that you also check the SBA website or contact your trusted financial institution before making any decisions. You may also refer to our list of small business COVID-19 resources page for further information.