The Treasury Department (Treasury) and the Small Business Administration (SBA) have just issued guidance for small businesses on how to access small business loans which were funded with the recently passed CARES Act (Phase 3). Below is information about loan eligibility, criteria, and how to apply.
Economic Injury Disaster Loans (EIDL)
The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing. The loan advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Immediate funds will be made available within three days of a successful application, and this portion of the loan will not have to be repaid (more details below).
To apply for an Economic Injury Disaster Loan (EIDL), click here
Qualification Criteria to EIDL Loans
The criteria for qualifying is somewhat relaxed when compared to a typical SBA loan and may even see some changes. Also, unlike a typical SBA loan, or even the Paycheck Protection Loans (PPP), detailed below, the application is going directly to the SBA rather than a bank or other lender. The qualification criteria include:
- Businesses with fewer than 500 employees (with some exceptions)
- Businesses that were in operation before January 30, 2020 (this date is different from what is required in the PPL—which is February 15, 2020)
- Businesses that meet the SBA’s industry-based size standard requirements for applicable NAICS code, which are based either on number of employees or annual receipts.
- Not-for-profits (except those receiving Medicaid funds)
- The maximum EIDL is a $2 million working capital loan at a rate of 3.75% for businesses and 2.75% for non-profits with up to a 30-year term;
- Payments on Coronavirus EIDL loans are deferred for one year;
- Up to $200,000 can be approved without a personal guarantee;
- Approval can be based on a credit score and no first-year tax returns are required;
- Borrowers do not have to prove they could not get credit elsewhere;
- No collateral is required for loans of $25,000 or less. For loans of more than $25,000, general security interest in business assets will be used for collateral instead of real estate;
- The borrowers must allow the SBA to review its tax records.
How can I access an Emergency $10,000 Grant?
Eligible applicants for an EIDL can receive a $10,000 emergency grant within three days of application (through Dec. 31, 2020).
There is no obligation to repay the grant. To receive the $10,000 emergency grant, it is not necessary to have an approved EIDL. However, if you are able to secure a PPP loan (detailed below), the $10,000 grant will be subtracted from the forgiveness amount.
To access the SBA’s webpage on EIDL’s and other resources, click here.
To apply for an EIDL, click here.
Paycheck Protection Program (PPP)
The Paycheck Protection Program, which is taking applications starting April 3 for small businesses and sole proprietorships, authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. All loan terms will be the same for everyone.
To apply for a PPP loan, click here.
The loan amounts will be forgiven as long as:
- Employee and compensation levels are maintained.
- The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and
- Employee and compensation levels are maintained.
Payroll costs are capped at $100,000 on an annualized basis for each employee. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. Loan payments will be deferred for 6 months.
All businesses with 500 of fewer employees – including:
- Veterans organizations
- Tribal business concerns
- Sole proprietorships
- Self-employed individuals
- Independent contractors
Note: Businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards for those industries.
In addition, guidance for S-Corps is not yet available as of Thursday April 2.
Allowable Uses for the Loans
- Payroll costs, including benefits;
- Interest on mortgage obligations, incurred before February 15, 2020;
- Rent, under lease agreements in force before February 15, 2020; and
- Utilities, for which service began before February 15, 2020.
- Payroll costs are defined as:
- Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
- Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
- State and local taxes assessed on compensation; and
- For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.
Size of Loans & Loan Forgiveness
Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount. That amount is subject to a $10 million cap. If you are a seasonal or new business, you will use different applicable time periods for your calculation. Payroll costs will be capped at $100,000 annualized for each employee. You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan.
Requesting Loan Forgiveness
You can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days
Contacting Lenders for PPP Loans
The Small Business Administration has a network of at least 1,800 approved lenders that process small business loans and intends to add more of them. If your bank is not an SBA-approved lender or you don’t have an existing banking relationship, you can contact the SBA to find one.
Time Period for Loan Applicability
The new loans apply to costs incurred from February 15 through June 30.
Interest Rate and Payment Schedule
The Treasury Department is initially setting the loan rate at 0.5 percent. However the CARES Act caps the interest rate for the Paycheck Protection Program at 4 percent, so it is possible the interest rate could increase. The first payment will be due after six months and the full loan will be due after two years.
NLBMDA will continue to update the COVID-19 resource page in real time as guidance continues to be issued from federal agencies.
The best resource for federal loan programs is the U.S. Small Business Administration or an SBA-qualified financial institution. You can reach the SBA by email at email@example.com or by phone at 1-800-827-5722.
The Treasury Department has also posted its own fact-sheet on the program on its CARES Act resource page.
Get Local SBA Assistance
To get assistance in your specific area, click here to access the SBA’s portal to pair you with the local SBA contact.
Please note these updates do not constitute legal advice. Information contained may be subject to interpretation and companies should consult with their own counsel.