As you have heard, the new CARES Act was passed last Friday and there is a lot of new legislation out there on how small businesses impacted by COVID-19 can benefit from it. Below is a summary of the programs small businesses can take advantage of to stay afloat during these uncertain times.
Paycheck Protection Program (PPP)
This is the program that people are calling, the “free money loan”. It’s not quite free, but there are mechanisms in place to allow for a portion of the loan to be forgivable under the right conditions.
- This loan must be obtained from a bank – If the business has an existing relationship with a bank, this would be the best point of contact to apply for funding. Most small businesses will qualify for this loan, as they have less than 500 employees. The business must have been in operations prior to February 15, 2020.
- Maximum Funding – Small businesses are eligible for up to 4 months of qualified expenses (payroll expenses, mortgage payments, rent payments, utilities and payments on any other debt obligations). The maximum funding is 250% of the average monthly payroll, prior to COVID-19. No loan may exceed $10 million.
- Loan Forgiveness – Only 8 weeks of payroll, loan interest, rent payments, and utilities qualify for the loan forgiveness. The entire loan is not necessarily forgivable. We are suggesting that our clients apply for 4 months of funding, but it is important that they understand that only 8 weeks of qualified expenses are forgivable. The rest will be structured into a loan at a 4% interest rate. The loan forgiveness is also based on a calculation of employment stabilization. If you did not bring your company back to its pre-COVID-19 employment structure, then the amount of loan forgiveness decreases.
Economic Injury Disaster Loan (EIDL)
- This is the SBA’s Disaster Assistance Loan that has been around for decades. The new stimulus bill added a few boosters to the program to help small businesses survive through this pandemic.
- Banks cannot help with this loan. This loan must be applied for either independently, or through a professional, such as a CPA or law firm.
- Loan of up to $2 Million at a 3.75% interest rate – This loan is designed to cover working capital and other ordinary costs of a business. It is not forgivable, but the loan is designed to cover more types of expenses than the PPP Loan discussed above. The payment terms are up to 30 years, but the SBA will determine the period the business should be able to pay it back over.
- Up To $10,000 Grant – There is a provision in the stimulus package that allows for up to a $10,000 advance on the EIDL that is not required to be paid back. The $10,000 is to be provided within 3 days of an SBA agent initiating the application process. The intention of this grant is to allow small businesses to cover payroll costs, debt obligations, and increased cost of supplies.
Loan Payment Deferrals
- Any small business impacted by COVID-19 with a loan backed by the Federal Government (any FDIC insured banks) should be allow a 90-day deferral period on small business loans. If a small business has an SBA Loan, the deferral period is 6-12 months. All a business needs to do is call their bank and ask for a deferral to start the process.
Payroll Tax Credits and Payroll Tax Deferrals
- Lastly, the new stimulus package does call for the ability to obtain tax credits on the employer’s portion of payroll taxes and even to be able to defer paying the payroll taxes, however, this is not available for businesses who obtain loans from the programs above. The payroll credits are not that lucrative in comparison, but were worth mentioning.
- The message we are sending to our clients is that they should apply for both the Paycheck Protection Program and the Economic Injury Disaster Loan. While the EIDL covers more business expenses, the PPP allows the opportunity for free money.
Call LB&J today if you have any questions or would like to see how you can qualify for any of the above programs and potentially get free money!
Thank you for your time and let’s all stay optimistic!