The Cares Act: Small Business Loans

If you are a small business owner, please make sure you are taking advantage of the new CARES Act’s provisions for small businesses: the Paycheck Protection Program and the SBA Economic Injury Disaster Loan.

Can a business get both loans? In short, yes. You must use them for different purposes, so use the Paycheck Protection Program (“PPP”) for payroll. If you apply for the disaster loan and then are approved for the Paycheck Protection Program, you can refinance the disaster loan over into the Paycheck Protection Program. A PPP loan may be forgiven if you comply with the requirements, so this is probably a good financial move.

The Paycheck Protection Program will be available tomorrow, April 3, 2020.

Here’s the best part: the loan proceeds will be forgiven if used to cover payroll costs and most mortgage interest, rent, and utility costs over the eight-week period after the loan is made AND if employee and compensation levels are maintained. And you do not need to personally guarantee the loan.

Loan forgiveness: The amount forgiven is reduced if the business fails the maintain the average number of full-time equivalent employees versus the period from either February 15, 2019, through June 30, 2019, or January 1, 2020, through February 29, 2020, as selected by the borrower. The amount forgiven is also reduced to the extent that compensation for any individual making less than $100,000 per year is reduced by more than 25% measured against the most recent full quarter.

You are eligible if your business has fewer than 500 employees and it is affected by COVID-19. You can get 2.5 months of your average monthly payroll (up to $10 million). Payroll includes compensation (e.g., salary, wage, commissions, tips), vacation or sick pay, group healthcare benefits, retirement benefits, and state and local tax assessed on employee compensation. It does not include employee compensation in excess of $100,000, compensation for employees based outside the U.S., or certain taxes and credits.

Apply April 3: Small businesses and sole proprietorships can apply for loans starting April 3, 2020 through existing SBA lenders. Simply put—you apply through your bank. Be ready to provide payroll documentation.

The whole point of this program is to keep people employed, so don’t do layoffs and don’t cut salaries if you get this loan.

The SBA Economic Injury Disaster Loan is also available. This is a low-interest disaster loan providing working capital to small businesses. You can use the loan for fixed debts, payroll, accounts payable, and other bills.
You are eligible if your business is unable to pay its ordinary and necessary operating expenses. You can get up to $2 million at 3.75% interest.
You can also apply for an emergency economic injury grant of $10,000.00. This advance does not have to be repaid. You request the grant when you apply for the disaster loan.
Apply for this loan through the SBA:

Can I get both loans?
Yes, if the loans are being put to different uses. If you get the disaster loan, you can roll that loan into a PPP loan and have it forgiven.

Other SBA Relief
If you already have a traditional SBA loan, the Small Business Debt Relief Program provides that the SBA will cover all payments on these SBA loans, including principal, interest, and fees, for six months.