Help is on the way! Here’s the ultimate guide to the federal financial stimulus for small business. Like many of our customers dealing with business disruptions, we are aware of the difficult decisions you face every day, especially about how to lay off employees. The Coronavirus Aid, Relief, and Economic Security Act (CARES ACT) is a financial stimulus package designed to help small business owners. In order to help alleviate the financial difficulties generated by the COVID-19 pandemic, small businesses or companies will be able to get up to $10 million in business loans to keep afloat. CARES Act is now regulated, but there are many issues to work through regarding pacing and implementation. It is necessary to note, however, that significant financial relief is underway.
“The CARES Act makes select changes to taxes and tax policies in order to ease the burden on businesses impacted by COVID-19.”
I’ve dissected over the 800+ pages of the Coronavirus stimulus bill so here’s a concise guideline to many of the small business provisions in the Coronavirus Aid, Relief, and Economic Protection (CARES) Act. This act was just passed by Congress, to help small business owners and entrepreneurs better understand the new services that will soon be available to them. The goal of these programs and initiatives is to support business owners with a variety of economic needs.
Small businesses, as well as other non-profits and other organizations, will have plenty of new resources available after details get worked out. This guide offers information about the various programs and initiatives that will soon be available from the Small Business Administration (SBA), as well as several relevant tax regulations that are outside the reach of SBA.
Still, find yourself struggling understanding CARES Act? The following questions can help in pointing you to the program that fits your needs. This Guide provides detailed information for each of the programs.
Do you need:
- Capital to cover Employee retention costs? Then the Paycheck Protection Program might be right for you.
- A fast infusion of less cash to help you cover right now? You might want to look into an Emergency Economic Injury Grant.
- To ease your concerns about holding to your present or future SBA loan payments? The Small Business Debt Relief Program could help.
- If you need immediate cash assistance, SBA Express Bridge Loans
- Just some reliable, free advice to help you manage this volatile economic time? The resource partners might be your best bet.
Here are four loan programs you can apply for:
1. PAYCHECK PROTECTION PROGRAM (PPP) LOANS – CARES ACT
The President signed the CARES Act into law Friday, March 27, 2020. The bill provides for $2.2 trillion in emergency relief to alleviate the financial burden of the COVID-19 crisis, including $349 billion for new partly forgivable small business loans to cover, among other items, some payroll expenses, mortgage obligations, rentals and utility payments. The Paycheck Protection Loans, which we call PPP loans, will charge interest at no more than 4 per cent and will be operated by the Small Business Administration (SBA). Cost, interest, and fee charges may be postponed for at least six months but not longer than one year. As the name of the program suggests, the aim of PPP Loans is to provide cash to small businesses such as franchisees. This is to keep people working during the economic downturn caused by the Coronavirus.
Who is eligible?
- Must have been in service on February 15, 2020.
- 501(c)(3) non-profit organization, a 501(c)(19) veteran organization, or a tribal business with less than 500 workers, or the equivalent size level in the number of employees of the North American Industry Classification System (NAICS) industry as given by SBA, if higher.
- People working as a sole proprietor or as an independent contractor and people qualifying for self-employment.
- Any business concern that has no more than 500 employees per company’s physical location and that is assigned an NAICS code starting with 72, for which the association requirements are waived.
- Affiliation requirements are also waived for any corporation functioning as a franchise to which the Administration assigns a franchise identification code and a company to which funding is given through a Small Business Investment Company.
What are affiliation rules?
Notably, the CARES Act waives the affiliation requirements of the SBA for deciding the eligibility of the PPP system for certain particular categories of enterprises, including enterprises in the Housing and Food Services Industry, franchise-assigned enterprises in the SBA Franchise Directory, and enterprises seeking financial assistance from a licensed Small Business Investment Company.
Despite this narrow exception, the majority of qualifying companies continue to be subject to the SBA’s affiliation rules, subject to guidance required from the SBA. Such SBA rules will add the number of full-time and part-time staff of an applicant to those of its domestic and international affiliates.
Identifying which businesses qualify as “affiliates” under the SBA’s regulations may be a fact-intensive investigation, but the touchstone of affiliation is the right to manage a business concern. Hopefully, coming SBA guidelines will explain the application of the SBA’s affiliation rules to applicants for PPP loans.
What types of nonprofits are eligible?
In general, 501(c)(3) and 501(c)(19) nonprofits are based on sales, not employee numbers, of 500 employees or fewer than most non-profit SBA size requirements.
How is the loan size determined?
The amount of the loan will be measured differently, depending on the condition of your company (see below). The maximum amount available for each borrower of a PPP loan is equal to the lesser of: (a) $10 million, or (b) 2.5 x its average cumulative monthly payroll costs as specified in the Act.
- were in business February 15, 2019 – June 30, 2019: Your overall loan over that time frame is equivalent to 250 percent of your total monthly payroll costs. If you are employing seasonal workers in your company, you may choose to choose March 1, 2019, as the start date for your time.
- were not in business between February 15, 2019 – June 30, 2019: Your maximum loan amount will be equivalent to 250 percent of your total monthly payroll costs from between January 1, 2020, and February 29, 2020.
- took out an Economic Injury Disaster Loan (EIDL) between February 15, 2020, and June 30, 2020, and you want the loan to be refinanced into a PPP loan, you’d add the unpaid debt to the payroll amount.
What costs are eligible for payroll?
The following are eligible:
- Compensation (salary, bonus, fee or the like, cash tip or similar payment)
- Payment for holidays, parental leave, family time, medical leave or sick leave
- Payment required for group health care policies, including insurance premiums
- Dismissal or separation allowances
- Payment of any retirement benefit
- Payment by the State or local tax on workplace compensation
What costs are not eligible for payroll?
The following are NOT eligible:
- Employee/owner benefits in excess of $100,000
- Taxes levied or withheld under chapters 21, 22 and 24 of the IRS code
- Benefits for workers whose principal place of residence is outside the United States
- Qualified sick and family leave requiring a credit under sections 7001 and 7003 of the Families First Coronavirus Response Act.
What are allowable uses of loan proceeds?
PPP loans are 100 percent federally guaranteed loans. This is for small businesses intended for companies to sustain their payroll rates and permit partial debt forgiveness, as mentioned below. The loans are available for qualifying companies until June 30, 2020, to cover the costs of:
- Payroll expenses
- Expenses related to the retention of employee health care coverage during times of paid maternity leave, medical leave or family leave, and insurance premiums
- Staff wages, bonuses or similar compensation, interest payments on any mortgage obligation (which does not require any prepayment or payment of interest on a mortgage obligation)
- Rent (including rent under a lease agreement)
- Interest on all other loan commitments accrued prior to the time covered
What are the loan terms, interest rates, and fees?
Unlike any other traditional SBA loans, PPP loans are unsecured loans. These require no collateral, no personal guarantee, and no evidence of unavailability of credit elsewhere. The PPP loan shall have a fixed term of 10 years to the amount not forgiven and the interest rate must not exceed 4 percent. PPP loans will be made available to SBA-approved borrowers, which will give a 6-12 month deferment on principal, interest and fee payments.
How is the forgiveness amount calculated?
A borrower of a PPP loan is entitled to a loan waiver for sums paid within the span of 8 weeks after the date of origination, subject to sufficient documentation on
- defined payroll costs
- mortgage interest
The amount of the PPP loan repayment can be decreased. This is if the borrower decreases the number of workers or salaries and wages (for workers with annual compensation of less than $100,000) within the span of eight weeks following the credit origination. Nevertheless, this reduction penalty will not extend to the degree that by June 30th, 2020. The creditor must recover their labor force count and wages.
How do I get forgiveness on my PPP loan?
You must apply for forgiveness on your loan through your lender, in which you must include:
- Documentation of the number of payrolls and pay rates for workers including IRS payroll taxes and State wages, pension and unemployment insurance files.
- Documentation of payments on secured mortgage, lease and service commitments.
- Certification by a representative of your company or association approved to verify that the documentation presented is valid and that the amount forgiven has been used in compliance with the requirements for use of the program.
What happens after the forgiveness period?
Any unforgiven loan amount shall be carried forward as a continuous loan with a fixed 10-year term at a fixed interest rate of 4%. The principal and the interest will continue to be postponed for a period of six months to one year after the loan has been disbursed. The clock does not start again.
Can I get more than one PPP loan?
No, a PPP loan is limited to one person or organization. Through loans will be reported at SBA under a Taxpayer Identification Number to prevent multiple loans to the same organization.
Where should I go to get a PPP loan from?
All existing borrowers under SBA 7(a) are qualifying PPP borrowers. The Treasury Department will be responsible for approving new lenders, including non-bank lenders. This is to help meet the small business owner’s needs.
How does the PPP loan coordinate with SBA’s existing loans?
Borrowers can apply for PPP loans and other SBA financial assistance, including Economic Injury Disaster Loans (EIDLs), 7(a) loans, 504 loans, and microloans, as well as receive Small Business Investment Corporations (SBICs) funding. Furthermore, you can’t use your PPP loan for the same reason however as your other SBA loan(s). For example, if you use your PPP to cover the payroll for the covered period of 8 weeks, you will not be able to use another SBA loan program for payroll for the same costs in that time. However, you may be able to use it for payroll only for that duration or for specific employees.
How does the PPP loan work with the temporary Emergency Economic Injury Grants and the Small Business Debt Relief program?
Emergency Economic Injury Grant recipients and those receiving loan-payment relief through the Small Business Debt Relief Program can apply for and take out a PPP loan as long as there is no duplication of funds used. For more details please refer to those pages.
2. SMALL BUSINESS DEBT RELIEF PROGRAM — CARES ACT
This program provides immediate relief for non-disaster SBA loans to small enterprises, in particular 7(a), 504, and microcredit. With this program, SBA will cover all loan costs on these SBA loans. This includes the principal, interest, and fees for six months. This provision would also be applicable to new borrowers who take out loans within six months of the bill being signed by the President.
Which SBA loans are eligible for debt relief under this program?
7(a) loans not made under the Paycheck Security Plan (PPP), 504 credits and microloans. Loans from the disaster are not available.
How does debt relief under this program work with a PPP loan?
Borrowers may apply for and take out a PPP loan separately, but debt relief will not extend to a PPP loan under this program.
How do I know if I’m eligible for a 7(a), 504, or microloan?
- have to follow size requirements
- be based in the U.S
- be able to pay back
- have a sound business intent
You will need the 6-digit North American Industry Classification System (NAICS) code and 3-year average annual revenue to check if your company is considered small. Each program has different specifications.
What is a 7(a) loan and how do I apply?
7(a) loans are an affordable lending commodity of up to $5 million for borrowers who lack credit elsewhere and need access to flexible funding, the acquisition of short-term or long-term working capital and the purchasing of existing companies, the refinancing of current commercial debt or the purchasing of furniture, fixtures and supplies. Banks share a portion of the loan burden with SBA on the program.
What is a 504 loan and how do I apply?
The 504 Loan Program offers loans of up to $5.5 million to eligible small companies with long-term, fixed-rate funding used for expanding or modernizing fixed assets. If you need to buy real estate, houses, and machinery, that is a good choice. You apply through a Certified Development Company, such as CDC Small Business Finance, a non-profit organization that promotes economic growth.
What is a microloan and how do I apply?
The Microloan Program offers up to $50,000 in loans to support start-up and grow small businesses and other non-profit childcare centers. Such loans are provided through mission-based lenders, such as CDC Small Business Finance, who can also provide business advice
I am unfamiliar with SBA loans, can anyone help me apply?
Yes, SBA network providers such as CDC Small Business Finance are available to help direct you through the process of applying for loans. The closest Small Business Development Center (SBDC) or Women’s Business Center may also be contacted.
3. ECONOMIC INJURY DISASTER LOANS & EMERGENCY ECONOMIC INJURY GRANTS – CARES ACT
The Coronavirus Assistance, Relief, and Economic Security (CARES) Act immediately extends the eligibility for SBA Economic Injury Disaster Loans (EIDL). Moreover, it offers an emergency loan of up to $10,000 to COVID-19-injured small businesses and private non-profits within 3 days of applying for an SBA Economic Injury Disaster Loan (EIDL).
To access the advance, apply for an EIDL first, then ask for an advance. In no circumstances will the loan be repaid, and can be used to keep workers on payroll, pay for sick leave, meet rising production costs due to supply chain delays, or cover business obligations, including interest, rent, and mortgage payments.
Are businesses and private non-profits in my state eligible for an EIDL related to COVID-19?
YES, those in all 50 states, DC and the territories who experience serious economic injury can qualify for an EIDL.
What is an EIDL and what is it used for?
The EIDL is a low-interest, fixed-rate loan designed to provide a small company with up to $2 million in assistance. SBA’s Economic Injury Disaster Loan (EIDL) grants come directly from the US Treasury. Applicants are not going to apply to a bank but apply directly to the Disaster Assistance System of SBA.
Moreover, actual sums of the loan are based on the economic injury. These loans provide critical economic support for small businesses. This is to help them resolve their temporary loss of sales due to COVID-19. The EIDL will fulfill the requisite financial commitments that should have been fulfilled by the company or private non-profit organization if the tragedy had not happened. EIDLs are no replacement for lost sales or revenue.
Is my business eligible to apply for the EIDL?
The EIDL offers up to $2 million in financial assistance to small businesses or private, non-profit organizations that are directly affected by the declared disaster. This includes businesses with 500 or fewer employees:
- Sole proprietorships, with or without employees
- Independent contractors
- Cooperatives and employee-owned businesses
- Tribal small businesses
Depending on your industry a small business is defined as a company that has a maximum of between 250 and 1,500 employees. The company can be a non-profit, sole proprietorship, LLC, corporation or private.
Who is not eligible for EIDL?
Groups that are not qualified for EIDL assistance regardless of 1/3 of the requirements in question include:
- religious and charitable groups
- gambling concerns (e.g., issues that derive more than 1/3 of their annual gross revenue from legal gambling activities)
- casinos and racetracks (e.g., companies with gambling intent, etc.)
What can the funds be used for?
These working capital loans will be used to pay:
- sick leave to employees
- meet increased production costs due to supply chain disruptions
- and other bills not paid due to the effects of the disaster(including debts, rent and mortgage payments)
The work capital loan can not be used for refinancing, extension, development of any kind or upgrades to the infrastructure.
Who is eligible for an Emergency Economic Injury Grant?
Expands eligibility for access to EIDL’s to include Tribal businesses, cooperatives, and ESOPs with fewer than 500 employees or any individual operating as a sole proprietor or an independent contractor during the covered period (January 31, 2020, to December 31, 2020). Private non-profits are also eligible for both grants and EIDLs.
How long are Emergency Economic Injury Grants available?
January 31, 2020 – December 31, 2020. The grants are backdated to January 31, 2020, to allow eligibility for a grant and for those who have already applied for EIDLs.
If I get an EIDL and/or an Emergency Economic Injury Grant, can I get a PPP loan?
A business that receives an EIDL between January 31, 2020, and June 30, 2020, as a result of a COVID-19 disaster declaration, are eligible to apply for a PPP loan, or the business may refinance their EIDL into a PPP loan. In either case, the emergency EIDL grant award of up to $10,000 would be subtracted from the amount forgiven in the payroll protection plan.
How do I apply for an economic injury disaster loan?
To apply for an online EIDL, please go to the SBA Disaster Loan Program website.
When you apply for SBA assistance the SBA District Office is an essential tool.
4. SBA EXPRESS BRIDGE LOANS
Express Bridge Loan allows small businesses access to $25,000 cash support to small businesses to help overcome the temporary loss of revenue they are experiencing or used to bridge the gap while applying for a direct SBA Economic Injury Disaster loan. Terms are below:
- Up to $25,000
- Fast turnaround
- Will be repaid in full or in part by proceeds from the EIDL loan
Contact your local SBA District Office.
COUNSELING & TRAINING
When you need a business advisor to help direct you through this difficult period, like so many small business owners, you should turn to your nearest Small Business Development Center (SBDC), Women’s Business Center (WBC), or SCORE mentorship group. A collaborative platform will soon be developed that consolidates COVID-19-related information and resources. This is to provide reliable, timely information to small businesses.
Furthermore, the Business Centers (MBDCs) of the Minority Business Development Agency, which work for minority companies of all sizes, will also receive funding to recruit staff and offer services to help their clients respond to COVID-19. Not every state does have an MBDC.
Do I have to pay for counseling and training through SBDCs, WBCs, and MBDCs?
Counseling is FREE, and training with these partners is low-cost. The additional funds that Congress provided will help keep this possible. Mentorship through SCORE is always free.
What is an SBDC?
The SBDCs are a nationwide network of approximately 1,000 centers located in leading universities, schools, state departments for economic development and private partners. They offer instruction and support for new and established companies. Every State has a lead center that explicitly oversees services for that state.
What is a WBC – is it only for women?
WBCs are a regional network of more than 100 centers providing one-on-one consultation, training, networking, seminars, professional assistance and mentoring to entrepreneurs on various topics related to business growth. WBCs are required, in addition to women, to meet the needs of underserved entrepreneurs like low-income entrepreneurs. Also, they give flexible hours to suit your client’s needs.
What is SCORE?
SCORE offers free, confidential business advice through our network of 10,000 + business experts who volunteer. You may meet with a mentor online.
While you are reading about these proposals and making critical decisions about what steps to take next for your company or staff, we urge you to focus on how these upcoming regulations will affect those choices. Health Plans in Oregon is closely monitoring best practices and resources to help you manage your business and will frequently share the latest information. Please contact Small Business Development Center (SBDC), Women’s Business Center (WBC), or SCORE mentorship group or Minority Business Development Agency.
You can read the bill here: https://www.congress.gov/bill/116th-congress/senate-bill/3548/text