As of April 16, 2020, the Small Business Administration (SBA) noted on its website that it is currently no longer able to accept new applications for the Economic Injury Disaster Loan (EIDL) assistance program (including EIDL advances) based on available appropriations funding.
Please note that if you have already submitted your application, that the SBA is continuing to process those applications on a first-come, first-served basis.
On Friday, March 27, in response to the devastating impact of the COVID-19 pandemic on the U.S. economy, Congress passed, and President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act (“Act”). Included in the Act was an appropriation of $350 billion for the Paycheck Protection Program (“PPP”). The PPP component of the Act contains long-term loans with debt forgiveness provisions. PPP loans should not be confused with Small Business Association (SBA) Economic Injury Disaster Loan (“EIDL”) program loans, which have a $10,000 non-repayable advance but do not include a debt forgiveness component equivalent to the PPP loan. A summary of both loan programs is noted below.
Paycheck Protection Program and Loan Forgiveness
- Loans are available for small employers and certain 501(c)(3) organizations, with 500 employees or fewer, as well as those that meet the current Small Business Administration (SBA) size standards.
- Loans equal to 250% of an employer’s average monthly payroll cost up to $10 million are eligible for forgiveness. The average monthly payroll cost is the average of the twelve months payroll prior to the loan, including employer-funded health insurance and retirement benefits. Seasonal employers will be allowed to utilize a 12-week calculation. Eligible payroll costs include compensation to owners but exclude compensation to an employee compensated above $100,000.
- Loans are 100% guaranteed by SBA with maximum terms of 10 years and 4% interest.
- Loans are administered by an SBA approved bank, and all requirements for personal guarantees will be waived.
- Amount of Loan forgiveness will be equal to the amount spent by the borrower during an 8-week period. That is after the origination date of the loan on payroll costs, interest payment on any mortgage or other obligation incurred before February 15, 2020, payment of rent on any lease in force before February 15, 2020, and payment on any utility for which service began before February 15, 2020.
- The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year and reduced by the decrease in the pay of any employee beyond 25% of their most recent compensation.
- Borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.
- Canceled indebtedness resulting from this section will not be included in the borrower’s taxable income.
- Loan amounts not forgiven at the end of one year are carried forward as an ongoing loan with terms of a max of 10 years at 4% interest. The 100% loan guarantee remains intact.
In summary, the debt forgiveness is intended to reimburse an employer 100% for the cost of retaining their existing workforce for eight weeks, plus provide an additional 50% of their labor cost to pay interest, rent, and utilities during the recovery period. That is if the employer maintains their current labor force from February 15, 2020, to June 15, 2020.
SBA Economic Injury Disaster Loan (EIDL)
Though much in the vein of the traditional disaster assistance loan, the Act did make some modifications to EIDL loans, including a grant provision not requiring repayment. Significant elements of the EIDL loans are as follows:
- Maximum loan amount of $2 million, an interest rate of 3.75%, and a maximum of 30 years to repay.
- Loans greater than $200,000 require personal guarantees (none required for loans less than $200,000).
- The Act removed the traditional SBA requirement that the borrower is not able to secure credit from another lender.
- The Act added an emergency grant provision that allows a non-repayable advance of $10,000. The advance should be paid within three days of the request and must be used for authorized costs. Repayment of the grant is not required if the EIDL loan is not approved.
It should be noted that duplicate loans from each program cannot be used for the same expenses.
Both the PPP and EIDL loan programs offer significant opportunities to help small businesses to continue to operate, retain employees, and hopefully reduce the financial burden due to the COVID-19 crisis. Every small business owner should evaluate and consider whether their business should participate in one or both of these opportunities.
The professionals at CRI are here to help you navigate the application process and to assist you in gathering the required information. We will keep monitoring updates as they occur and posting them to our COVID-19 Resource Page.
For additional questions on how to apply, whether your small business qualifies, or any other concern, please contact your CRI Advisor.