Overview of CARES Act Small Business Loans
On March 27, 2020, President Trump approved The Coronavirus Aid, Relief, and Economic Security (CARES Act), a $2 trillion relief package intended to protect small business from the economic impacts of COVID-19.
Some media have overstated CARES Act business loans as “free money” or “fully forgivable.” Enterprise owners should proceed with caution, do their homework, and not automatically assume any of these four loan types will be fully forgiven:
CARES Act Paycheck Protection Program (PPP). The PPP loan is intended to help small businesses keep their workers on the payroll. Treasury Department guidelines confirm collateral or personal guarantees are not required. The loan currently has a maturity of two years and a 1% interest rate. Applicants apply for the loan through a banking institution or credit union. Businesses receiving a PPP loan may not also claim Employee Retention Credits (i.e., tax-refundable credits equal to 50 percent of qualified wages paid after March 12, 2020 and before January 1, 2021 up to a specified maximum amount).
The Small Business Administration (SBA) will forgive a portion of the PPP loan proceeds if the business can retain or restore its average pre-pandemic number of employees and the money is used for payroll and most rent, mortgage interest and/or utilities expenses over the eight weeks from loan funding. The SBA has announced it will publish further guidance on the loan forgiveness component in the coming week or so.
These links provide further information on the PPP program, leading to application forms:
- https://www.uschamber.com/sites/default/files/023595_comm_corona_virus_smallbiz_loan_final.pdf
- https://home.treasury.gov/policy-issues/top-priorities/cares-act/assistance-for-small-businesses
Economic Injury Disaster Loan (EIDL). Small businesses that apply for an EIDL loan can request an immediate advance of up to $10,000 to offset a temporary loss of revenue. Applicants may apply directly on the SBA’s website. The loan advance does not have to be repaid even if the loan is denied. However, if the business also obtains a PPP, the PPP loan forgiveness will likely decrease by the $10,000 EIDL advance, and the EIDL and PPP loans may not be used for identical payroll expenses. Click on this link for more information:
Express Bridge Loan (EBL). The EBL permits small businesses with pre-existing SBA “Express Lender” relationships to quickly access up to $25,000 to help overcome the temporary loss of revenue. For example, if an enterprise urgently needs cash while waiting for EIDL approval and disbursement, it may qualify for this bridge loan, to be repaid in full or in part by the EIDL loan proceeds. For more information, please click here.
SBA 7(a) Loans (Standard and Express Loans). This is the SBA’s longstanding program for providing small businesses with financial assistance. Please click on this link for more information.
Best practices include:
- Promptly consult with a CPA or other tax advisor before taking out a loan
- Always ensure the business can repay any loans under the terms stated
- Fill out all applications truthfully and accurately
- Promptly notify the lender of any inadvertent errors
- Carefully document the use of all loan proceeds and consider segregating the funds in a separate account, especially if the business will be seeking any loan forgiveness
See also:
- It’s a Wash (April 10, 2020)
- When the Show Must Go On; Key Protection for an Employee’s Covid-19 Diagnosis/ Symptoms (April 8, 2020)
- Safer at Home (April 3, 2020)
- COVID-19 Gets Noticed (April 2, 2020)
- Unemployment Goes Viral; Furlough or Layoff, Distinction without a Difference? (March 28, 2020)
- Workplace Safety Nets (March 27, 2020)
- Federal Coronavirus Workplace Relief (March 23, 2020)
- Telecommuting in Response to Coronavirus Outbreak (March 18, 2020)
For more information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.
Cindy Bamforth
April 14, 2020