Financial Support for Small Businesses Available through the CARES Act

The Coronavirus Aid, Relief and Economic Security Act (CARES Act)), signed into law on March 27, includes two SBA lending programs for small and medium-size businesses to obtain substantial disaster relief relating to COVID-19. These include:

• Paycheck Protection Program (PPP)
• Economic Injury Disaster Loan (EIDL) program, which was expanded under the CARES Act

Given the favorable terms of these two SBA loan programs (described below), eligible small businesses who have been impacted by the COVID-19 pandemic should strongly consider taking advantage of these loan programs. ALL CPAs is here to help and can help guide you through selecting the right loan and the application process. More information on the programs is below.

Paycheck Protection Program (PPP)

The Paycheck Protection Program provides small businesses with:

• Zero-fee loans of up to $10 million to cover payroll and other operating expenses.
• Up to 8 weeks of payroll, mortgage interest, rent, and utility costs can be forgiven.
• Payments on principal and interest are deferred for six months and up to one year.

Eligibility

You are eligible if:

• Your business or entity was in operation on February 15, 2020;
• You are a small business, a 501(c)(3) nonprofit organization, a 501(c)(19) veterans organization, or tribal business concern that has fewer than 500 employees, or the applicable size standard in number of employees for the North American Industry Classification System (NAICS) industry as provided by SBA, if higher.
• You are a sole proprietorship, an independent contractor, or self-employed.
• You are a franchise business that employs not more than 500 employees per physical location and your business has an NAICS code beginning with 72, for which the affiliation rules are waived. Affiliation rules are also waived for any business operating as a franchise that is assigned a franchise identifier code by the SBA, and any company that receives funding through a Small Business Investment Company.

Loan Size:

The maximum loan size is 250% of average monthly payroll costs for the one-year period before the loan is made. If you are a seasonal worker, it is 250% of average monthly payroll costs from February 15, 2019, to June 30, 2019, or you can opt to choose March 1, 2019, as the time period start date.
If you were not in business this time last year, your maximum loan is equal to 250% of your average monthly payroll costs between January 1, 2020, and February 29, 2020. The loan maximum in all cases is $10 million (ALL CPAs can help you determine what your loan size would be under the PPP).

Use of Loan Funds:

You may use the funds for:

• Payroll costs (all costs included above)
• Costs related to group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
• Employee salaries, commissions, or similar compensations (except as excluded above)
• Payments of interest on any mortgage (but not payment or prepayment of principal)
• Rent
• Utilities
• Interest on any other debt obligations that were incurred before the February 15, 2020.

Loan Terms:

For any amounts not forgiven, the maximum term is 10 years, the maximum interest rate is 4 percent, zero loan fees, zero prepayment fee (SBA will establish application fees caps for lenders that charge).

Loan Forgiveness:

You can apply to your lender to forgive your loan for the amount of payroll costs plus payments of mortgage interest, rent, and utilities incurred during the 8-week period after the loan is disbursed. The amount that can be forgiven is proportionate to maintaining employees and wages. You must apply through your lender for forgiveness and provide additional documentation.

Any loan amounts not forgiven are carried forward as an ongoing loan with max terms of 10 years, at a maximum interest rate of 4 percent. Principal and interest will continue to be deferred, for a total of 6 months to a year after disbursement of the loan.

Can I use a Paycheck Protection Loan with other SBA loans?

Yes, you may apply for a paycheck protection loan and other SBA loans, including the SBA economic injury disaster loans, 7(a) loans, 503 loans, and microloans. However, you may not use funds from each of these programs for the same purposes.ess under the PPP.

Economic Injury Disaster Loan (“EIDL”)

Another option for small businesses is the SBA’s existing EIDL Program, which was expanded by the CARES Act and provides for longer-term loans with favorable borrowing terms:

• Disaster relief loans are capped at $2 million with an interest rate of 3.75% (2.75% for nonprofits, except charitable organizations that are ineligible).
• EIDL applicants may also request an emergency grant directly from SBA of up to $10,000. Such advances are considered grants rather than loans and are not subject to repayment, even if the EIDL is later denied. Currently these advances are committed to be provided within three days after the SBA receives the loan application. If an EIDL recipient later refinances into a PPP loan, any advances would be offset against any payroll related loan forgiveness.

Eligibility

• Companies in all 50 states, District of Columbia, and some U.S. territories are  now eligible for EDIL loans relating to economic injury caused by the COVID-19 pandemic.
• The CARES Act expands eligibility for EIDL loans beyond the previous definition of “Small Businesses” to include: (i) a business with not more than 500 employees; (ii) Tribal businesses, cooperatives and ESOPs with not more than 500 employees; (iii) any individual operating as a sole proprietor or an independent contractor; and (iv) private nonprofits and small agricultural cooperatives.
• EIDL loans completed before December 31, 2020, SBA will no longer require personal guarantees for those loans (or advances) under $200,000.
• The SBA has also changed the requirement that borrowers must be in business for a full year to require only that borrowers be in business as of January 31, 2020.

Loan Terms

While there are no loan forgiveness provisions applicable to EIDL loans, companies that have already applied for or received EIDLs due to economic injury attributable to the COVID-19 pandemic can seek to refinance their EIDL loans under the PPP to take advantage of the PPP’s loan forgiveness provisions.

Applying for PPP & EIDL

ALL CPAs can help guide you through the selection processs and help with all aspects of applying for either program. Again, given the  favorable terms of these two SBA loan programs and the potential for loan forgiveness under PPP loans, eligible small businesses who have been economically impacted by the COVID-19 pandemic should strongly consider taking advantage of these loan programs.  Applications for EIDL loans should be submitted directly to the SBA, while PPP loans will be available from SBA-approved lenders.

As the COVID-19 crisis continues to unfold, we will continually monitor the situation and tax matters surrounding it and provide timely updates as information becomes available. If you have any questions about the CARES act or how it may impact you or your business please contact your ALL tax advisor or call us at 617-738-5200.