Small Business Federal Resources
Paycheck Protection Program
The content in this section was last updated on April 2, 2020.
For small businesses, the cornerstone of the Coronavirus Aid, Relief, and Economic Security (CARES) Act is the $349 billion Paycheck Protection Program, an emergency lending facility to provide cash-flow assistance to businesses negatively impacted by the COVID-19 pandemic. Federal resources also include Economic Injury Disaster Loans and Emergency EIDL Grants.
What is the Paycheck Protection Program?
Who is Eligible?
- The Paycheck Protection Program will provide small businesses with loans that may be partially or fully forgiven and are 100% federally guaranteed (SBA PPP Loans)
- This program leverages the existing (SBA) 7(a) lending program and current 7(a) lenders, while vastly increasing the available amount, improving loan terms, streamlining borrower requirements, and providing for the expansion of eligible lenders for SBA PPP Loans
- Please note, PPP Loans are available on a first come, first served basis
For-profit businesses, not-for-profit organizations, veterans organizations, and Tribal business concerns that meet the following 3 criteria:
With the exception of businesses with a NAICS industry code beginning with 72 (primarily hospitality and food service industries), certain franchise businesses, and businesses that have received investment from an SBIC, a business’s employee count will include the employees of its affiliates (as defined by the SBA)
What Size is the Loan?
- Are either
a) Entities with fewer than 500 employees or small entities as defined by the SBA; certain industries may have higher maximum employee levels OR
b) sole proprietors, independent contractors and self-employed individuals
- Were in operation on February 15, 2020
- Will certify, among other things, that the uncertainty of current economic conditions makes the loan necessary to support ongoing operations
How are “Payroll Costs” Defined and Calculated?
- The maximum loan size is the lesser of (i) $10 million or (ii) 2.5x average total monthly “payroll costs”
- If the business has already received an SBA Economic Injury Disaster Loan (EIDL) and chooses to refinance that loan with an SBA PPP Loan, the outstanding EIDL loan amount can be added to the loan amount, subject to the $10 million cap
What Can the SBA PPP Loan Be Used For?
- Payroll costs for businesses include salaries, wages, cash tips, payments for vacation, parental, family, medical, or sick leave, and group health care benefits, as well as certain other employment-related expenses
- Payroll costs for sole proprietors and independent contractors includes wages and net earnings from self-employment
- Compensation for an individual employee, sole proprietor or independent contractor above $100,000 annually (pro-rated for the period) is excluded
- The average payroll will be calculated over (i) the year prior to the loan origination, (ii) for seasonal employers, the period between February 15, 2019 through June 30, 2019 or, at the election of the borrower, March 1, 2019 through June 30, 2019, or (iii) the period between January 1, 2020 and February 29, 2020 for businesses not in operation during the period between February 15, 2019 and June 30, 2019
Borrowers will be required to make a good faith certification that the loan proceeds will be used for:
How Much of the SBA PPP Loan Can be Forgiven?
- At least 75% of the loan size on payroll costs
- Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
- Employee compensation
- Business related mortgage interest payments (not principal), lease payments, utility payments
- Interest on any other business debt obligations that were incurred prior to February 15, 2020
What If I Have Already Reduced My Workforce?
- Amounts spent during the 8 week period after loan origination on payroll costs, business mortgage interest, rent, and utilities
- Forgiveness will be reduced pro-rata for workforce reductions (this does not include employees who are re-hired)
- Forgiveness will be reduced if salaries/wages are reduced by more than 25% (excluding reductions for salary and wage amounts over $100,000)
- At least 75% of the forgiveness amount must be for payroll costs
- Forgiveness cannot exceed the original loan amount
What are Other Key Terms of the Loan?
- The Paycheck Protection Program is retroactive to February 15, 2020
- This means employers can use the funds to re-hire employees and still benefit from loan forgiveness
What is the Timing?
- Interest rate: 1% annually
- Loan term: 2 years
- No fees for borrowers
- All borrowers will receive at least 6 months of interest and principal payment deferment
- SBA PPP Loans:
- DO NOT require companies to have been in operation for one year
- DO NOT require a personal guarantee or collateral
- DO NOT explicitly require companies to be profitable
Which Lenders Can Make SBA PPP Loans?
- Treasury has advised that lenders may begin processing loans for small businesses and sole proprietorships beginning April 3, 2020 and for self-employed individuals and independent contractors on April 10, 2020
- Eligible lenders must participate within this timeframe
- Loans can be made until June 30, 2020
- See sample borrower application and borrower factsheet, both released by Treasury on March 31, 2020
- Eligible lenders currently include existing SBA 7(a) program lenders, federally insured depository institutions, federally insured credit unions, and Farm Credit System institutions
- All institutions that are eligible may choose to not participate
- Additional lenders with sufficient qualifications are expected to be added on a rolling basis by SBA and the US Department of the Treasury
Economic Injury Disaster Loans and Emergency Economic Injury Grants
The content in this section was last updated on April 2, 2020.
Who Is Eligible?
Emergency Injury Disaster Loans (“EIDLs”) and Emergency Economic Injury Grants (“EIDL Grants”) provide cash assistance for businesses suffering substantial economic injury due to COVID-19 across all 50 states, Washington D.C. and the territories.
Certain businesses that were in operation on January 31, 2020 that have suffered economic injury due to COVID 19 including:
What Can an EIDL Be Used For?
- Entities with 500 or fewer employees, including businesses, cooperatives, ESOPs, tribal small business concerns, and small agricultural cooperatives
- Businesses with more than 500 employees that meet the applicable size standard for SBA based on industry
- Sole proprietorships and Independent contractors
- Private nonprofits (of any size)
- Note: For EIDLs, businesses with 500 or fewer employees do not require the affiliation analysis that may be required for certain businesses under the SBA PPP Loans
EIDLs are available to pay for expenses that could have been met had the COVID-19 pandemic not occurred, including:
What are the Key Terms of the EIDL?
- Payroll costs including paid sick leave to employees
- Increased costs due to supply chain interruptions
- Rent or mortgage payments
- Obligations that cannot be met due to revenue losses
- Up to $2 million loan amount
- Interest rate of 3.75% annually for small businesses and 2.75% annually for non-profits
- Up to 30-year loan term
- Requires personal guaranty for loan amounts above $200,000
- Submission of tax returns is not required
If I Apply For an EIDL, Can I Also Get an SBA PPP Loan?
Key Things To Know About EIDL Loans
- Businesses can apply for and receive both EIDLs and SBA PPP Loans but the loan proceeds cannot be used for the same purpose
- What This Means: If you use EIDL proceeds to cover payroll for certain workers in April, you cannot use SBA PPP Loan proceeds for payroll for those same workers in April, although you could use SBA PPP Loan proceeds for payroll in March or for different workers in April
Under the CARES Act, EIDL provisions have been expanded:
If you applied for an EIDL prior to the COVID-19 national emergency declaration, you may have been denied because your specific geography was not yet eligible. You can now re-apply for an EIDL.
- EIDLs can be approved by SBA based solely on an applicant’s credit score
- EIDLs of less than $200,000 can be approved without a personal guarantee
- SBA is not requiring real estate collateral and will take a general security interest in business property
- Businesses need not have been in business for the one-year period prior to the COVID-19 pandemic
What Is an EIDL Grant?
Who Is Eligible for an EIDL Grant?
- An emergency $10,000 cash advance that may be requested during the EIDL application process that SBA will fund within three days of applying for the EIDL
- The EIDL Grant does not need to be repaid, even if the application for the EIDL is denied
- Note: If you obtain both an SBA PPP Loan and an EIDL Grant, the EIDL Grant will be reduced from the amount of forgiveness under the SBA PPP Loan
Where Do I Apply?
- Anyone who is eligible to apply for an EIDL, retroactive to January 31, 2020 to allow those who have already applied for EIDLs to also receive the EIDL Grant
For Further Reading
- SBA is currently accepting applications online. Click here to apply through December 31, 2020
- SBA resource partners are available to help guide you through the EIDL application process. Find the nearest Small Business Development Center, Women’s Business Center, or SCORE mentorship chapter at https://www.sba.gov/local-assistance/find/
For any specific questions about the CARES Act and how it may impact your business, we strongly encourage that you contact your CPA or legal counsel.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. Past performance is not a guarantee of future results. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations.
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