We wanted to make sure you are aware of the funding options available to small business as part of COVID-19 relief program. There are two (2) primary programs; Paycheck Protection Program and Economic Injury Disaster Loan and Emergency Economic Injury Grants:
Paycheck Protection Program Loans also known as Expanded SBA 7(a) Loans
Basics of the PPP/Expanded SBA 7(a) Loans:
- Loan can be used for payroll; salaries; sick/medical leave; healthcare plans; insurance premiums; mortgage interest payments; rent; utilities; and interest on any other debt incurred before February 15, 2020.
- Any bank that currently issues SBA loans should be able to issue this loan for you.
- Interest rates are capped at 4%.
- You can request a loan worth 2.5 months of payroll expenses (salaries/wages+benefits+sick leave+state/local taxes), up to $10 million. This is calculated based on your average monthly payroll expenses for the last 12 months.
- No fees, collateral, or personal guarantee required to apply.
- Payments will be deferred 6 months to 1 year depending on your lender.
How much of the loan will be forgiven?
- For the 8 week period after the origination of a PPP loan, the lender (backed by the government) will forgive all loan dollars that are spent on payroll expenses (max $100k annual per employee), or mortgage/rent/utility expenses that you were already paying before Feb. 15, 2020.
- However, the amount that the government forgives will be reduced proportionally by the reduction in your number of employees retained from the previous 1 year period, as well as any amount of salary/wages reduced by more than 25% per employee from their prior 1-year earnings.
Applying for the expanded 7(a) loan/Paycheck Protection Program:
- Start reaching out to lenders NOW. If you have a relationship with a bank already, ask them when they will begin accepting applications and what documentation they will require.
- If you have a CPA, ask them help with documentation.
- Start preparing your documents.
Economic Injury Disaster Loans & Emergency Economic Injury Grants
These grants provide an emergency advance of up to $10,000 to small businesses and private non-profits harmed by COVID-19 within three days of applying for an SBA Economic Injury Disaster Loan (EIDL). To access the advance, you first apply for an EIDL and then request the advance. The 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.
It appears the PPP offering may have advantages over the EIDL offering. Please talk with your CPA and lender to determine the best-fit for your company.
Additional information is also available in the The Small Business Owner’s Guide to the CARES Act.