The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provided a couple options for financial relief from the impact of reduced hours and services during the COVID-19 crisis:

Paycheck Protection Program (PPP) Loan Forgiveness

The US government has allocated $349 billion to the SBA to guarantee loans to small businesses:

  • Apply through banks and credit unions, especially your current banker
  • Payment deferral is 6-12 months depending on the institution
  • There are no fees (unlike disaster relief loans)
  • They are “7(a) loans”
  • Business does not need to be shut down partially or completely, just in business since Feb. 15th
  • Good for self-employed and independent contractors, too
  • No personal liens or guarantees
  • Can receive up to 2.5 times your “payroll period” which is an average monthly payroll costs during the one-year period prior to the loan. New businesses who have payroll expenses in January and February 2020 can use those averages to determine amount qualified for.
  • For example, a business with average monthly payroll costs of $100,000 a month can borrow up to $250,000. Costs included when establishing the amount of the loan:
    • Employee salaries, wages, commissions, tips etc.
    • Employees/owner compensation over $100,000 per year[1], are capped at $8,333.33 per month
    • Payment for vacation, parental, family, medical or sick leave
    • Severance payments
    • Group health insurance premium
    • Retirement plan contributions by the employer
    • State and local taxes assessed on such compensation
  • If you took a “disaster loan” prior, then your loan amount can be increased to include a refinancing of the disaster loan

SBA Disaster Loans (EIDL) program:

Small businesses (500 employees or fewer) affected by COVID-19 are eligible to apply for a long-term low-interest loan providing up to $2 million in working capital.  An EIDL is limited to providing working capital that is unavailable from other sources, as determined by the U.S. Small Business Administration (SBA), for an eligible business to continue operations until the effects of the declared disaster have passed.

The APPLICANT must establish that the claimed economic injury is substantial and is a direct result of the declared disaster. Substantial economic injury generally means a decrease in income from operations or working capital with the result that the business is unable to meet its obligations and pay ordinary and necessary operating expenses in the normal course of business.  The business does not have to be shut down completely or even partially – just impacted financially.

  • New streamlined application process
  • 3.75% interest rate for small businesses
  • Deferred payment for 12 months after first disbursal
  • Emergency grants of up to $10,000 are available for immediate relief within three days of applying[1] if in business since January 31, 2020
  • EIDL applied after January 31 are also eligible for this grant
  • Personal guarantees waived on loans less than $200,000[2]

[1] US Senate Committee on Small Business Entrepreneurship:  Small Business Guide to the CARES Act

[2] CARES Act offers relief from personal guarantees for emergency loans as well as loan forgiveness