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On March 27th, President Donald Trump signed the CARES Act into law. These are funds for small businesses that offer forgivable grants and loans, as well as loan deferrals. There’s a significant amount of money — $377 billion — allocated to support small businesses in Congress’s latest coronavirus stimulus package. The MG Co. almost immediately realized the confusion and competing laws so we decided to help out. Please use this guide with links to help navigate through the various programs and call us for more information. * We are not a bank. We are a consulting firm that works with small businesses, local governments and the SBA on a regular basis. *
Let's start with the first two that allow businesses to apply for new loans, though the full menu of relief options is available on the SBA’s website. The first is the Paycheck Protection Program (PPP), which enables organizations to obtain up to $10 million in loans that are 100 percent forgivable if they do not lay off any employees or if they rehire employees they’ve already laid off.
The second is the Economic Injury Disaster Loan Program (EIDL), which includes a $10,000 grant that businesses can apply for and which they do not need to pay back. The rest of the EIDL loan, which caps out at $2 million, is not forgivable but can be more flexible than PPP in the types of expenses it covers.
MG Consultants suggest that businesses and nonprofits apply for both (all possible loans)— and that they should do so fast. The Treasury Department states: “We encourage you to apply as quickly as you can because there is a funding cap." Since both programs also have a limited amount of funding, applying sooner is also important in case their allocated funding is used. The EIDL application is already live and accessible here.
MG offers a broad overview of both programs, but for specific questions, organizations can reach out directly to the Small Business Administration via a new 24/7 phone help line: 1-800-659-2955 or can reach out for our help to consult: Apply@TheMutualGrowth.com
Let’s start with what’s included in the bill
The Paycheck Protection Program and the Economic Injury Disaster Loan Program are the two main options small businesses and nonprofits have to obtain financial support during the coronavirus outbreak. (It’s worth noting that organizations can receive both loans and that an EIDL loan can also be refinanced into a PPP loan.)
The Paycheck Protection Program - (PPP): The bulk of the small business stimulus funds in the CARES Act, roughly $349 billion, is dedicated to establishing the Paycheck Protection Program, which is intended to guarantee businesses the loans they need to cover eight weeks of payroll, along with some utility and rent costs.
If businesses keep employees on payroll or rehire them by June 30 after they’ve been laid off, these loans could be fully forgiven. Businesses are able to request 2.5 times their average monthly payroll costs for this loan.
Organizations can apply for PPP by calling their banks and other lenders directly, or through this form on the SBA website.
The Economic Injury Disaster Loan - (EIDL): There’s $10 billion in the stimulus bill allocated for the EIDL, a program that has existed for some time.
This money will go toward two things: It sets up a grant program that would provide a $10,000 emergency “advance” that businesses won’t have to pay back, and it funds low-interest loans organizations can use to cover operating expenses, though they will have to repay these funds. The loan amount that organizations can request will be based on the amount of “economic injury” that they have sustained because of the coronavirus.
Businesses and nonprofits can apply for the EIDL directly on the Small Business Administration website.
The EIDL application and the PPP application are functioning on the SBA website. Another PPP application went live on Friday, April 10, for independent contractors and self-employed individuals.
There is more uncertainty right now around the PPP because it’s an entirely new program the SBA is trying to get off the ground. Treasury Secretary Steven Mnuchin has said that the goal is same-day approval for loans, but it’s not yet clear how quickly the entire effort will be fully functional. We understand that banks have raised concerns about how quick these applications have rolled-out and some have limited who they are accepting loan applications from.
Still, experts have urged small businesses to begin reaching out to their banks — which will be in charge of approving PPP loans — so that institutions are aware of the interest and can alert organizations promptly once the program is officially underway.
The EIDL Program, meanwhile, is already actively fielding applications, and the $10,000 grants that are part of it are likely the fastest way for businesses to obtain relief at this point. If a business is approved for these grants, it will be able to receive them within three days of approval, according to the SBA. Any business or nonprofit that applies for an EIDL loan can indicate that it is interested in this emergency advance, and organizations can still receive it even if they aren’t approved for the full loan.
The first step for companies and nonprofits interested in these programs is to figure out whether they’re eligible for these specific loans, which are predominantly focused on helping organizations that have suffered hardships because of the coronavirus outbreak.
In addition to meeting the size standards that are set by the SBA, businesses and nonprofits need to show that they’ve been negatively affected by the coronavirus. Businesses and nonprofits eligible for the PPP program are required to have been operational on February 15, 2020, and to demonstrate that the economic fallout from the coronavirus has hurt them. They include:
Any business with 500 or fewer employees
Any 501(c)3 nonprofit that has 500 or fewer employees, or otherwise meets the SBA’s size requirements
Restaurants, hotels, or other businesses categorized under “Accommodation or Food Services” that have 500 or fewer employees at each independent location
Tribal businesses and 501(c)9 veterans organizations
Independently owned franchises
Self-employed workers, independent contractors, gig workers, and sole proprietors
Businesses and nonprofits eligible for the EIDL program are required to have been operational on January 31, 2020, and to have experienced negative economic effects because of the coronavirus crisis. They include:
Any business with 500 or fewer employees
Any private nonprofit that has 500 or fewer employees — or otherwise meets the SBA’s size requirements
Sole proprietorships and independent contractors
Tribal businesses, cooperatives, and employee-owned businesses
Keep in mind:
* EIDL loan cannot be used to pay employees for the month of March if a PPP loan was already being used to do that. * The focus of the two programs, ultimately, is slightly different. * Under PPP, the loans are predominantly aimed at covering payroll costs (up to $100,000 per employee) but can be used to address other expenses as well, including utilities, rent, and interest on mortgage payments.
* Loans used to cover these costs are 100 percent forgivable at the end of the eight-week period during which they are used, but if the money is used for other expenses, that portion of the funds will not be forgiven. * Under EIDL, the grants and loans can be used for a broader array of costs, including rent and mortgage payments, salaries, workers’ paid leave, and the business’s operational needs. Because small business owners don’t have to worry about as many rules around loan forgiveness, there’s slightly more flexibility regarding these funds.
If a business or nonprofit is looking for a more rapid influx of cash, the EIDL route — which includes quick approval of the $10,000 emergency grant — could be the best first step. MG suggests - Everyone should be applying for the disaster loans, that’s where there’s a potential for $10,000 in grants, as soon as the provision gets authorized.
The big difference between the two programs is that the PPP loans are entirely forgivable if companies meet a specific set of requirements, while EIDL loans (except for the $10,000 grant) are not. The cap for PPP loans is also higher, at $10 million per organization, while the EIDL loans cap out at $2 million.
There are two separate processes for applying for these loans
Applications for these loans are expected to go through two different channels.
To apply for the EIDL loan and the $10,000 grant: Small-business owners and nonprofits can apply directly with the Small Business Administration at this website: https://covid19relief.sba.gov/#/. When small businesses submit their applications for the EIDL loan, they can indicate they are interested in the emergency grant at the same time.
To apply for the PPP loan: Organizations can call their current bank or lender directly, and the application is now live at the SBA website. At this point, banks are just beginning to accept applications, and calling now to indicate interest in the loan can help businesses get in the queue quickly. The Treasury Department has shared information about what the application will look like.
All 1,800 banks that currently participate in the SBA’s 7(a) loan program are expected to participate in the PPP option also, and the Treasury Department is poised to approve additional lenders in the coming weeks.
Participating institutions already include hundreds around the country such as TD Bank and Bank of the West, though some — like Bank of America — may require businesses to have an existing credit card account or loan with the institution to be considered for PPP. (Businesses can check directly with their banks to determine if this is the case.)
A more comprehensive list of banks that currently offer 7(a) loans can be found at the SBA website. In order to move the process along quickly, SBA is not expected to be involved in the approval process, and banks will be able to move forward with candidates independently.
Businesses and nonprofits need to be prepared to provide information about their payroll costs
The requirements across the two programs differ slightly, though both have relaxed the need for a personal guarantee of the loan:
PPP: Businesses are able to obtain 2.5 times their average monthly payroll costs for this loan, up to $10 million per organization. Costs that can be included as payroll costs include worker salaries, paid leave, health care benefits, commissions, and tips.
Average monthly payroll costs will be calculated using either monthly costs the business experienced from February 15 to June 30, 2019, or average monthly costs the business experienced from January 1 to February 15, 2020, if the business did not open until this year.
Businesses should begin preparing documents that demonstrate their monthly payroll and operational costs including payroll tax filings and rental contracts.
EIDL: There are no personal guarantees needed for loans less than $200,000, according to Forbes. Businesses should have documentation ready to show their operating expenses and revenue.
**** Be aware of the terms for loan forgiveness and for repayment ****
Components of both the EIDL offering and the PPP program are entirely forgivable, and each offers its own unique terms for repayment, which businesses should keep in mind as they are weighing the two.
PPP Terms
The PPP loans are 100 percent forgivable, depending on whether businesses lay off workers and how they use the money.
The loan will be completely forgiven if businesses do not lay off workers at all or if they rehire workers by June 30, 2020.
If a business lays off workers and does not rehire them, a portion of the loan will not be forgiven. If a business reduces the wages it pays out to a worker by more than 25 percent during the time that it is using the loan, part of the loan will not be forgiven.
If the loan is used for costs that are not approved by the bill, those portions will also not be forgiven and will have specific repayment terms.
Repayment could be deferred for six months and will have an interest rate beginning at 1 percent. The maximum term of repayment is two years.
EIDL Terms
The $10,000 EIDL grant that businesses and nonprofits can apply for is forgivable and can be used for a wide range of business needs.
Aside from the $10,000 grant, the rest of the loan is not forgivable.
The loan will have a 3.75 percent interest rate for small businesses and a 2.75 percent interest rate for nonprofits, and repayment can be deferred for six months. The maximum term of repayment is 30 years.
Please contact MG Co. for a consultation. We are here to help: MG@TheMutualGrowth.com
