On March, 27th, President Trump signed the CARES Act into law that provides various assistance to individuals and small business owners. Below is the information on two loans available to small businesses (including self-employed).
Small businesses are eligible to apply for Paycheck Protection Program (PPP) or/and Economic Injury Disaster Loans (EIDLs).
Overview
Paycheck Protection Program (PPP)
The PPP loan program is one of the SBA’s primary programs for providing financial assistance to small business concerns.
The CARES Act includes a $349 billion package for the PPP loan program through December 31, 2020.
Economic Injury Disaster Loans (EIDLs)
The EIDL program is available for certain business located in an area affected by a disaster — such as a public health disaster — that have suffered a substantial economic injury as a result of such disaster.
The CARES Act includes a $10 billion package to expand the SBA EIDL program to additional eligible businesses impacted by the COVID-19 pandemic.
Who is eligible?
Paycheck Protection Program (PPP)
All U.S. entities, for-profit or non-for-profit, with less than 500 employees are eligible.
Sole-proprietors, independent contractors, and self- employed individuals.
Economic Injury Disaster Loans (EIDLs)
All U.S. entities, for-profit or non-for-profit, with less than 500 employees are eligible.
Sole-proprietors, independent contractors, and self- employed individuals.
Eligibility Requirement
Paycheck Protection Program (PPP)
An applicant must qualify as an eligible business as described above.
Economic Injury Disaster Loans (EIDLs)
In addition to above requirement,
The borrower business must have suffered "substantial economic injury" as a direct result of a declared disaster.
The applicant must not own property subject to a judgment lien owned by the US government.
Loan Amount
Paycheck Protection Program (PPP)
The lesser of:
- 2.5 times the average of monthly payroll cost for last twelve months, or
- $10 million.
Economic Injury Disaster Loans (EIDLs)
Up to $2 million
However, the actual loan amount is limited to economic injury as determined by SBA.
Interest Rate
Paycheck Protection Program (PPP)
Max 4% interest rate
Economic Injury Disaster Loans (EIDLs)
Max 3.75% interest rate for small business
Max 2.75% for nonprofits
Loan Maturity
Paycheck Protection Program (PPP)
Maximum maturity of 10 years
Economic Injury Disaster Loans (EIDLs)
Maximum maturity of 30 years
Application Fees
Paycheck Protection Program (PPP)
No application fees
Economic Injury Disaster Loans (EIDLs)
No application fees
Deferments
Paycheck Protection Program (PPP)
Deferments of principal and interest payments for a period of at least six months and not to exceed one year.
Economic Injury Disaster Loans (EIDLs)
The CARES Act does not address deferment for EIDLs.
Allowable Usage
Paycheck Protection Program (PPP)
During the covered period (February 15, 2020 and June 30, 2020), proceeds from a PPP loan may be used for:
- 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 salaries, commissions, or similar compensations;
- Payments of interest on any mortgage obligation (other than prepayment);
- Rent payments
- Utility payments, or
- Interest on any other debt obligations that were incurred before February 15, 2020
Economic Injury Disaster Loans (EIDLs)
Traditionally, EIDLs are permitted for only:
- Working capital necessary to carry the business
- Expenditures necessary to alleviate the specific economic injury
The CARES Act expands the allowable uses of EIDLs to include: - Providing paid sick leave to employees unable to work due to the direct effect of COVID-19
- Maintaining payroll to retain employees
- Meeting increased costs to obtain materials unavailable from the applicant’s original source because of interrupted supply chains
- Making rent or mortgage payments – Repaying obligations that cannot be met due to revenue losses
Loan Forgiveness or Advance
Paycheck Protection Program (PPP)
Borrowers can apply for loan forgiveness equal to the costs incurred and payments made during the 8-week period immediately following the issuance of the loan on the following:
- Payroll costs (excluding compensation over $100,000);
- Interest on mortgages; and
- Payments of rent and utilities.
- To qualify for loan forgiveness, the borrower has to maintain the same number of employees between February 15 and June 30 that it did during the same period in 2019 or from January 1, 2020 through Feb 15, 2020.
No reduction in employee wages by more than 25% for employees making less than $100,000.
Economic Injury Disaster Loans (EIDLs)
EIDLs are not eligible for loan forgiveness.
However, under the CARES Act, an applicant is not required to repay any amounts of an advance provided under the Act even if the applicant is subsequently denied the EIDL grant.
Collateral and Enforcement of Loans
Paycheck Protection Program (PPP)
No collateral or personal guarantees are required.
Economic Injury Disaster Loans (EIDLs)
No personal guarantee for a loan up to $200,000.
However, collateral is generally required for loans of more than $25,000.
Application Process
Paycheck Protection Program (PPP)
Loan will be provided by banks and administered by SBA. As such, borrower will have to apply for the loan through SBA preferred lenders.
Economic Injury Disaster Loans (EIDLs)
Loans are provided directly by SBA. Applicant can submit application and supporting documents online.
This information is for educational purpose only. Further information can be found at SBA.gov.