The CARES Act signed into law on Friday, March 27th, 2020 provided small business relief in the form of two small business loan programs: the expansion of Economic Injury Disaster Loans (EIDLs) and the Paycheck Protection Program. Below is a summary of what we know so far.
Economic Injury Disaster Loans (EIDL)
- EIDLs are loans made directly by the SBA and are usually made available to certain areas impacted by a natural disaster. Due to COVID-19, EIDLs are now available to small businesses in all 50 states and all US territories.
- The purpose of an EIDL loan is to provide economic support to small businesses to help them overcome a temporary loss in revenue.
- The CARES Act expanded EIDLs to include a Loan Advance of up to $10,000 that does not need to be repaid, effectively making it a grant. It is not clear how the amount of the grant is determined.
- Applying for an EIDL does not preclude applying for a Paycheck Protection Program Loan, but some coordination may be required. Borrowers cannot double-dip.<
- Business owners affected by COVID-19 should apply for an EIDL if:
- They need immediate cash. $10K Loan Advance (EIDL grant) will apparently be available in about 3 days. [Update: SBA has indicated that the Advance will provide $1,000 per employee up to $10,000.]
- EIDL grant of $10K is likely to exceed any potential loan forgiveness under the PPP Loan. At ~$50K in annual payroll, there is no difference between the amount of loan forgiveness available through the PPP and the EIDL $10K grant. SBA has indicated that the Advance will provide $1,000 per employee up to $10,000.
- Applicant will not be able to maintain their workforce. There is no requirement to maintain employees to receive the EIDL Grant.
To get more information and apply for a EIDL loan, visit this website: https://www.sba.gov/page/disaster-loan-applications
Payroll Protection Program Loan (PPP Loan)
- The Payroll Protection Program was created by the CARES Act to help encourage small business owners to maintain their workforce.
- PPP Loans are being made through the SBA’s existing 7(a) loan program. 7(a) loans are made by participating lenders but guaranteed by the SBA.
- The maximum loan amount is limited to 2.5 times the average monthly payroll (and self-employment income)
- Loan proceeds used to toward payroll costs, rent, mortgage interest, and utilities during the 8 week period following the loan origination date are eligible for loan forgiveness as long as the business can show that they have maintained the same level of employment as the same period the previous year or during the period January 1-February 29, 2020.
- Borrowers who have received an EIDL can apply for a PPP Loan, but they cannot double-dip. Proceeds cannot be used for the same purpose, so it may be necessary to use PPP loans to pay off EIDL loans. If a $10K EIDL grant was received, the amount of the PPP loan that is eligible for loan forgiveness will be reduced accordingly.
- Business owners affected by COVID-19 should apply for a PPP loan if:
- The owner can make good faith certification that the business has been impacted by COVID-19. This requirement is fairly broad.
- The owner is likely to qualify for loan forgiveness. If the applicant will not be able to maintain their workforce even with the loan, then an EIDL with the $10K loan advance grant is probably the better option.
- To apply for a PPP Loan, contact your bank.
If you will be applying for either or both of these loans, we ask that you let us know about your experience by emailing updates to firstname.lastname@example.org.