On Friday, March 27, 2020, President Donald Trump signed into law the Cares Act, a $2 trillion coronavirus economic stimulus bill. This bill offers a number of provisions designed to aid both individuals and businesses adversely affected by the economic fallout of the mandatory and recommended closures due to COVID-19. While you can read the bill in its entirety here: https://assets.bwbx.io/documents/users/iqjWHBFdfxIU/rSVHQuPeCB_g/v0 ( if that’s your thing), we thought we’d offer a quick guide just for businesses to get the DL on these Payroll and Disaster loans everyone is talking about.
“Small business relief: $350 billion is being dedicated to preventing layoffs and business closures while workers have to stay home during the outbreak. Companies with 500 employees or fewer that maintain their payroll during coronavirus can receive up to 8 weeks of cash-flow assistance. If employers maintain payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven.”Forbes
The Cares Act expands the Economic Injury Disaster Loans (EIDLs) program to include more businesses, lower the barrier to entry, and to provide immediate relief. Loans below 200K are also able to be issued without a personal guarantor. Under what is known as the Paycheck Protection Program, these loans provide small businesses with funds to pay up to eight weeks of payroll costs, including benefits. Up to 25% of these funds can also be used to pay interest on mortgages, rent, and utilities. Below is our Quick Guide to the EIDL loans including info on where to apply.
Quick Guide to the EIDL Program:
Who is eligible?
- Business with not more than 500 employees. (In some cases, you may qualify as small with 500 or more employees. To see if you still qualify with over 500 you can check here. )
- Individual who operates under a sole proprietorship, with or without employees, or as an independent contractor.
- Cooperative with not more than 500 employees.
- Employee Stock Ownership Plan (ESOP), as defined in 15 U.S.C. 632, with not more than 500 employees.
- Tribal small business concern, as described in 15 U.S.C. 657a(b)(2)(C), with not more than 500 employees.
- Business, including an agricultural cooperative, aquaculture enterprise, nursery, or producer cooperative, that is small under SBA Size Standards found at https://www.sba.gov/size-standards.
- Business with more than 500 employees that is small under SBA Size Standards found at https://www.sba.gov/size-standards.
- Non-profit organization that is a non-governmental agency or entity that currently has an effective ruling letter from the IRS granting tax exemption under sections 501(c),(d), or (e) of the Internal Revenue Code of 1954, or satisfactory evidence from the State that the non-revenue producing organization or entity is a non-profit one organized or doing business under State law, or a faith-based organization.
Who is not eligible?
- Applicant must not be engaged in any illegal activity (as defined by Federal guidelines).
- Principal of the Applicant with a 50 percent or greater ownership interest must not be more than sixty (60) days delinquent on child support obligations.
- Applicant must not be an agricultural enterprise (e.g., farm), other than an aquaculture enterprise, agricultural cooperative, or nursery.
- Applicant must not present live performances of a prurient sexual nature or derive directly or indirectly more than de minimis gross revenue through the sale of products or services, or the presentation of any depictions or displays, of a prurient sexual nature.
- Applicant must not derive more than one-third of gross annual revenue from legal gambling activities.
- Applicant must not be in the business of lobbying.
- Applicant cannot be a state, local, or municipal government entity and cannot be a member of Congress.
How much money can I get?
You can qualify for a loan in the amount of 10K up to 10M USD. How much you get is determined by your last year’s business income.
Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount. That amount is subject to a $10 million cap. If you are a seasonal or new business, you will use different applicable time periods for your calculation. Payroll costs will be capped at $100,000 annualized for each employee.
What about the 10K emergency cash advance?
If you complete the initial application, you may qualify for an immediate emergency loan of 10K that does not need to be paid back should you fail to qualify for the complete application:
“The expanded EIDL loan program also offers up to a $10,000 emergency cash advance that may not need to be paid back.”US Chamber
During the recent National Small Business Town Hall, Neil Bradley, executive vice president and chief policy officer at the U.S. Chamber of Commerce, said businesses that apply for EIDL loans should be able to get a cash advance within three days of applying.
What can I use the money for?
You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. So, technically you can use it for anything but you will have to pay it back if you don’t follow the approved costs. Here’s a list of approved costs:
- Payroll costs, including benefits;
- Interest on mortgage obligations, incurred before February 15, 2020;
- Rent, under lease agreements in force before February 15, 2020; and
- Utilities, for which service began before February 15, 2020.
Do I really not have to pay it back?
As mentioned, you won’t have to repay the loan if you use it as intended, which is for payroll, mortgage interest, rent, and utility payments. It has also been anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. You must maintain your staff and payroll during this time. More detailed parameters can be found here.
Where do I apply?
You can file your initial application here: https://covid19relief.sba.gov/#
Loans are issued. by local lendors, a list of which can be found here: https://www.sba.gov/
I need help filing. Where should I turn?
We agree this process is confusing. Beware however, that there are lots of people lined up to take money from you to “help” you secure your loan. Don’t fall into that trap. You shouldn’t have to pay anyone for advice for how to access these loans. We suggest going to your local bank or any of the approved SBA lendors for assistance in filing your application.