Updated April 24, 2020
The CARES Act PPP and EIDL loan programs, suspended on April 16th due to the exhaustion of their allocated funds in the CARES Act, have been replenished by the U.S. Congress and signed into law by the President on April 24th.
The PPP program got $320 billion of additional funds, while the EIDL program got $50 billion more. Furthermore, the EIDL Grant (Emergency Economic Injury Grant) got an additional $10 billion, doubling its size.
All eligible businesses that have applied for a PPP loan and have not received funds yet should contact their lender and inquire about the status of their applications and ensure their completeness. There is no room for error as it is likely that the entirety of the newly added funds will be distributed within a few days. It is not necessary to reapply for a loan if you have already submitted your application. Applications should be processed on a first come first serve basis.
The CARES Act, passed by the U.S. Congress and signed by the President on March 27, is packing a lot of dough for Main Street America due to the coronavirus crisis.
The U.S. federal government is giving away to small businesses $377 billion under several programs including the Paycheck Protection Program, Emergency Economic Injury Grants, Economic Injury Disaster Loan Program, Small Business Debt Relief Program, Payroll Tax Deferral and Forgiveness, and SBA Express Bridge Loans.
Paycheck Protection Program
Did you know that any small business, sole proprietorship, 1099/gig workers, private non-profit with 500 employees or under, with payroll expenses, that were in operation prior to Feb 15, 2020, can apply to get a forgivable loan equal to 2.5 times their average monthly payroll, to fully pay for 8 weeks of payroll expenses? The maximum loan amount through the Paycheck Protection Program (PPP) is $10 million. It can cover salary, incentives, tips, payroll taxes, medical insurance and other payroll expenses. Applicants granted this loan can have part or the entirety of that loan forgiven when they keep the same payroll expenses they had prior to the crisis. This is regardless of them experiencing hardship or not!
Although massive red tape is removed and no collator or personal guarantees are required, there are a few restrictions to note. For instance, while calculating the average monthly payroll to derive the total amount of the loan allowed, salaries should be capped at $100,000.
The CARES Act provided $349 billion to initially fund the PPP, then Congress added $320 billion more on April 24th.
This is only one program of the many programs available with the CARES Act. Uncle Sam is giving money away at an unprecedented level. The bill also offers more free money that most small businesses can get within days and weeks from the federal government through the Small Business Administration and its Administrators.
Economic Injury Disaster Loans (EIDL)
The Economic Injury Disaster Loans are not new. But with the CARES Act, much red tape have been removed and interest rates are rock bottom. Furthermore, this program’s funds were increased on April 24th by an additional $50 billion. The same list of companies that qualify for the PPP can apply for EIDL. You need to have been in business since at least January 31, 2020.
Applicants can get up to $2 million in loans at 3.75% rate for 30 years and 2.75% for private nonprofit. While a credit score is run and collateral is requested, according to the SBA, no one will be denied a loan.
Under the CARES Act, individual lenders will provide their own paperwork or online forms to process EIDL loans. SBA is expected to approve the loans within two weeks.
Here is what you need to get ready to file for the loan:
- Federal Tax Returns for the last 2 years
- Last Year and Current P&Ls and Balance Sheets with Projected Statements
- Documents showing business adversely impacted by the COVID-19 pandemic
- List of personal assets, liabilities and net worth (SBA Forms 413 and 2202 may be used)
- Tax Information Authorization (IRS Form 4506T)
Note that any loan amount equal or under $25,000 will not require any collateral. Also, there are no fees involved. Principal and interest deferment are offered at the Administrator’s discretion from 6 months to 1 year.
Economic Injury Disaster Loan Emergency Advance
The Economic Injury Disaster Loan Advance is a $10 billion program that is also called the Emergency Economic Injury Grant (EEIG). This program’s funds were increased on April 24th by an additional $10 billion. You must apply for an Economic Injury Disaster Loan (EIDL), explained above, to get this loan advance. The grant awards small businesses up to a $10,000 loan advance in as little as 3 business days from the time the SBA Administrator receives the initial loan application.
Applying for this grant is very easy and can take place online in under 10 minutes. You can apply for this grant and possibly receive it even if you are not approved for the EIDL loan.
Again, any small business, sole proprietorship, 1099/gig workers, private non-profit with 500 employees or under qualifies.
Here is what you need to apply:
- EIN Number or Tax ID/SSN
- Date the business is established
- Date of last ownership
- Revenue from Feb 1st, 2019 to Jan 31st, 2020
- Cost of Goods Sold for the same period
- Names, addresses, telephone numbers and SSN of all owners
- Business Bank Account and Routing Numbers
Go to https://covid19relief.sba.gov/ and file your grant request online now!
If you have already applied for an EIDL loan after January 31, 2020, you can request the grant by backdating it.
You can apply for all of EIDL, EEIG and PPP simultaneously. EEIG will be deducted from the PPP forgiven loan amount and PPP and EIDL loan funds cannot be used to pay for the same operating expenses.
SBA Express Bridge Loan (EBL)
Need money fast? If you already have a relationship with an SBA Express lender, you can quickly get a 7-year bridge loan for up to $25,000 from your existing lender without additional collateral.
For EBL loans made under the COVID-19 Emergency Declaration, the lender must document in the credit memorandum that the EBL applicant had an operating business as of March 13, 2020 and that the applicant has demonstrated that it has been adversely impacted by the COVID-19 emergency.
If you are interested in getting an SBA Express Bridge Loan, hurry! No more than 10% of the total number of 7(a) loans guaranteed by SBA in any fiscal year may be made under the EBL Pilot Program.
Small Business Debt Relief Program
If your small business already holds a current non-disaster SBA loan, you can have the loan payments, principle, interest and fees covered for 6 months through the Small Business Debt Relief Program in the CARES Act. This relief is also offered to new loans issued prior to September 27, 2020. Note that PPP loans and EIDLs are not eligible for this debt-relief program as they each have their own deferred payment rules.
Many loans guaranteed by the SBA are covered under this program, including the flagship 7(a) and 504 programs. Please check with your local SBA office for more detail.
Payroll Tax Deferral and Forgiveness
An estimated $50 billion in refundable tax credits will be provided to companies to help retain employees and keep their payrolls. But businesses must pay 50% of payroll taxes.
Employers will be eligible for a 50% refundable payroll tax credit on wages they pay up to $10,000 per eligible employee. The credit is only available to businesses that are disrupted due to the COVID-19 shutdown and who experienced a 50% reduction in gross sales compared to the same quarter last year.
Small businesses can claim the credit for all employee wages for companies with 100 or fewer workers. It can also be used by companies with over 100 employees if their workers are retained but aren’t working due to the pandemic.
Companies can also defer payment of payroll taxes through the end of 2020.
CAUTION: Deferral is not provided to employers receiving assistance through the Paycheck Protection Program (PPP). Ask your accountant or payroll service provider for the full details and make sure you apply the law carefully. Incorrect payroll tax payments and submissions incur steep penalties and could result in jail time!
Take Care of Your Cash Flow Today!
Since there are a lot of loans and grants, with little or no collateral needed, all small businesses that qualify should consider these generous programs. Acting in a timely manner can boost your cash flow and keep your business afloat during the upcoming daunting months.
Note that demand for these programs will be staggering. Websites, the SBA and the administrating banks will be inundated with requests. So, start looking into your options early!
Contact your local SCORE chapter to get a SCORE mentor and receive guidance today!
Disclaimer: The author is neither an accountant nor a financial advisor. The above information is pulled from the CARES Act and other government sources.