April 1, 2020

The small business owner’s guide to the CARES Act

Everything you need to know about how the SBA's Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) applies to small businesses.

SUMMARY: There are two key SBA small-business relief programs :

1) Paycheck Protection Program (PPP) (up to $10m loan, which is forgivable if you meet certain milestones on maintaining your payroll);

2) Economic Injury Disaster Loan (EIDL) & Grants (you can receive a $10k cash advance within 3 days of applying for up to $2m of an Economic Injury Disaster Loan (EIDL)); according to the government, “the $10k advance does not need to be repaid under any circumstance, and may be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments.”)

The PPP loan application is live: (UPDATE April 24th: The SBA will resume accepting Paycheck Protection Program applications from participating lenders on Monday, April 27, 2020 at 10:30am EDT.)

The EIDL application is live.

You are allowed to do BOTH programs, but there are restrictions (see below).

Two other SBA Loan options that may apply to you:

  • SBA Express Bridge Loans: Enables small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 quickly.
  • Debt Relief For SBA Loans: The SBA is providing a financial reprieve to small businesses during the COVID-19 pandemic.


                                                                      ***

In addition to this guide on the SBA’s Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL), our Trends research team has compiled 19 mini-case studies on how other small businesses are coping with the crisis.

*Up-to-date as of 5pm EST April 24th

Where are the primary sources?
Here is the 11-page government summary PDF and PPP website and EIDL portal (definitely consult all).

Which SBA office can help me? 
Keep in contact with the SBA office nearest to you (here are Twitter accounts for each district office)

What programs are available? (TL;DR)

  1. Capital To Cover Employee Costs → Paycheck Protection Program (Fill out this form for up to $10 million of an SBA loan)
    • SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.
    • Who is eligible?:This program is for any small business with less than 500 employees (including sole proprietorships, independent contractors and self-employed persons), private non-profit organization or 501(c)(19) veterans organizations affected by coronavirus/COVID-19. Businesses in certain industries may have more than 500 employees if they meet the SBA’s size standards for those industries.
    • What lenders are eligible?: You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union,  and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating in the program.
    • Here is a list of the 100 most active SBA 7(a) lenders; contact your local SBA office and lenders for more information
    • Lenders may begin processing loan applications as soon as April 3, 2020 (here is the SBA PPP link to “find a lender”; work through your current bank if possible)
  2. $10k Advance For Loan Application (Up to $2m) → Economic Injury Disaster Loans (EIDL) & Emergency Economic Injury Grants (Advance of $10,000 comes within three days of applying for the SBA Economic Injury Disaster Loan, through this portal up to $2 million)
    • What is EIDL used for? 
      • EIDLs are lower interest loans of up to $2 million, with principal and interest deferment at the Administrator’s discretion, that are available to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses.
    • Who is an eligible?
      • Those eligible are the following with 500 or fewer employees:
        1. Sole proprietorships, with or without employees
        2. Independent contractors
        3. Cooperatives and employee owned businesses
        4. Tribal small businesses
        5. Small business concerns and small agricultural cooperatives that meet the applicable size standard for SBA are also eligible, as well as most private non-profits of any size. See below for more info on size standards. (refer to PDF)
    • What are loan terms:
      • Up to $2m
      • Payback period = 15-30 years 
      • Interest rate = 3.75% 

Can I Do Both The PPP and EIDL Programs? 

Whether you’ve already received an EIDL unrelated to COVID-19 or you receive a COVID19 related EIDL and/or Emergency Grant between January 31, 2020 and June 30, 2020, you may also apply for a PPP loan.

If you ultimately receive a PPP loan or refinance an EIDL into a PPP loan, any advance amount received under the Emergency Economic Injury Grant Program would be subtracted from the amount forgiven in the PPP. However, you cannot use your EIDL for the same purpose as your PPP loan. For example, if you use your EIDL to cover payroll for certain workers in April, you cannot use PPP for payroll for those same workers in April, although you could use it for payroll in March or for different workers in April.


What Should I Have Ready For The PPP Application?

  1. Fill out the PPP form
  2. On April 3rd (here is the SBA PPP link to “find a lender”; work through your current bank if possible)
  3. Have documentation proving revenue / expenses prior to February 15th, 2020
  4. Key documents
    • Gather your company EIN or TIN number
    • 2017 taxes
    • 2018 taxes
  5. 2019 taxes (if not complete yet, 2019 Profit and loss broken down by month will work)
  6. Lenders will request documents to verify
    • Full-time equivalent employees on payroll 
    • dollar amounts of payroll costs
    • covered mortgage interest payments
    • covered rent payments
    • covered utilities for the eight week period starting when you get this loan
  7. Stay in contact with your local SBA office 

OK, So I Can Go To The Portal For The EIDL…Can You Tell Me More About The PPP?

  1. Capital To Cover Employee Costs → Paycheck Protection Program (FORM)
    • Key Dates:
      • Lenders can process PPP on April 3rd (here is the SBA PPP link to “find a lender”; work through your current bank if possible)
      • Loans available through June 30, 2020
    • Details:
      • 100% federally guaranteed loans to employers who maintain payroll during this emergency 
      • PPP has a host of attractive features, such as forgiveness of up to 8 weeks of payroll based on employee retention and salary levels, no SBA fees, and at least six months of deferral with maximum deferrals of up to a year.
    • Who Is Eligible?: 
      • Business must have been in operation on February 15th, 2020 (This program would be retroactive to February 15, 2020, in order to help bring workers who may have already been laid off back onto payrolls)
      • Small business concerns, as well as any business concern, a 501(c)(3) nonprofit organization, a 501(c)(19) veterans organization, or Tribal business concern described in section 31(b)(2)(C) that has fewer than 500 employees or the applicable size standard in number of employees for the North American Industry Classification System (NAICS) industry as provided by SBA, if higher.
      • Individuals who operate a sole proprietorship or as an independent contractor and eligible self-employed individuals.
      • Any business concern that employs not more than 500 employees per physical location of the business concern and that is assigned a NAICS code beginning with 72, for which the affiliation rules are waived.
    • What Is Loan Size?
      • Your max loan is equal to 250% of your average monthly payroll costs (up to $10,000,000)
      • For purposes of calculating “Average Monthly Payroll”, most Applicants will use the average monthly payroll for 2019, excluding costs over $100,000 on an annualized basis for each employee. For seasonal businesses, the Applicant may elect to instead use average monthly payroll for the time period between February 15, 2019 and June 30, 2019, excluding costs over $100,000 on an annualized basis for each employee. For new businesses, average monthly payroll may be calculated using the time period from January 1, 2020 to February 29, 2020, excluding costs over $100,000 on an annualized basis for each employee.
        • SAMPLE CALCULATION
        • Jan 2019 – Dec 2019 Payroll (12 months) = $1.2mn
        • Avg. Monthly Payroll Expense = $1.2mn / 12 = $100k
        • Loan (2.5x Avg. Monthly Payroll) = 2.5 x $100k = $250k
      • If you took out an EIDL between February 15, 2020 – June 30, 2020, and you want to refinance the loan into a PPP loan, you would add the outstanding loan amount to the payroll sum.
    • What is eligible for payroll (and loan proceeds)? 
      • Compensation (salary, wage, commission, or similar compensation, payment of cash tip or equivalent)
      • Payment for vacation, parental, family, medical, or sick leave
      • Allowance for dismissal or separation
      • Payment required for the provisions of group health care benefits, including
      • Insurance premiums
      • Payment of any retirement benefit
      • Payment of State or local tax assessed on the compensation of employees
      • Payroll costs (as noted above)
      • Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
      • Employee salaries, commissions, or similar compensations (see exclusions above)
      • Payments of interest on any mortgage obligation (which shall not include any
      • Prepayment of or payment of principal on a mortgage obligation)
      • Rent (including rent under a lease agreement)
      • Utilities
      • Interest on any other debt obligations that were incurred before the covered period
    • What is NOT eligible for payroll? 
      • Employee/owner compensation over $100,000
      • Taxes imposed or withheld under chapters 21, 22, and 24 of the IRS code
      • Compensation of employees whose principal place of residence is outside of the U.S.
      • Qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act
    • What are the loan terms? 
      • For any amounts not forgiven, the maximum term is 10 years, the maximum interest rate is 4 percent, zero loan fees, zero prepayment fee (SBA will establish application fees caps for lenders that charge)
    • How is loan forgiveness calculated? 
      • You must apply through your lender for forgiveness on your loan. In this application, you must include:
        1. Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and State income, payroll and unemployment insurance filings. 
        2. Documentation verifying payments on covered mortgage obligations, lease obligations, and utilities. 
        3. Certification from a representative of your business or organization that is authorized to certify that the documentation provided is true and that the amount that is being forgiven was used in accordance with the program’s guidelines for use.
    • Can I get more than one PPP loan?
      • No, an entity is limited to one PPP loan. Each loan will be registered under a Taxpayer Identification Number (TIN) at SBA to prevent multiple loans to the same entity

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