The $2 trillion stimulus package known as the CARES Act (Coronavirus Aid, Relief, and Economic Security Act), enacted late last week, includes significant measures to help small and mid-sized businesses impacted by the COVID-19 outbreak. It is also generating some confusion regarding two separate but related loan programs. Here is what business owners need to know about the Paycheck Protection Program (PPP) and Emergency Economic Injury Disaster Loans (EIDL).
Both programs are administered by the Small Business Administration, and both are available to small businesses (500 or fewer employees, with a few narrow exceptions), non-profits, independent contractors, and self-employed individuals. There are some significant differences between the two, however.
Paycheck Protection Program
- Loan Amount: capped at $10 million, OR 2.5 times the average total monthly payroll costs of the business – whichever is less
- Allowed uses of loan funds: payroll costs; continuation of group health care benefits; group health care premiums; salaries; mortgage interest; rent; utilities; interest on any pre-existing loans.
- Interest rate: .5%
- Covered Period: February 15, 2020-June 30, 2020
- Loan Forgiveness: Loans will be forgiven as long as the proceeds are used to cover payroll costs, mortgage interest, rent and utility costs over the eight-week period after the loan is originated, and as long as employers maintain or quickly rehire employees and maintain salary levels.
- Loan Term: 10 years
- How to Apply: Through SBA-approved participating lenders, using this sample form, from the SBA website: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Application-3-30-2020-v3.pdf
Emergency Economic Injury Disaster Loan Grants
Loan Amount and Advance: up to $2 million. In addition, borrowers can receive an advance of up to $10,000, payable within 3 days of application. Even if the application is eventually denied, the business will not be required to repay this amount. Please note the heavy influx of applications is preventing the SBA from administering the advances within 3 days.
Allowed uses of loan funds: payment of fixed debts, payroll, accounts payable, rent, utilities and other bills that cannot be paid because of the COVID-19 disaster.
Interest Rate: Not to exceed 3.75% for business and 2.75% for non-profits.
Covered Period: January 31, 2020-December 31, 2020
Loan Term: up to 30 years
How to Apply: Directly to the SBA, electronically or by mail, using the following link https://covid19relief.sba.gov/#/
Coordination Between the Two Programs
Borrowers may apply for both types of loans. However, a PPP loan cannot be used for the same purpose as an EIDL loan. For example, if you use your PPP loan to cover payroll for the 8-week period after the loan originates, you cannot use your EIDL loan for payroll for the same period. As an example, the Small Business Owner’s Guide to the CARES Act prepared by the Senate Committee on Small Business provides “if you use your EIDL to cover payroll for certain workers in April, you cannot use PPP for payroll for those same workers in April, although you could use it for payroll in March or for different workers in April.” The Guide is available through the following link:
https://www.sbc.senate.gov/public/_cache/files/9/7/97ac840c-28b7-4e49-b872-d30a995d8dae/F2CF1DD78E6D6C8C8C3BF58C6D1DDB2B.small-business-owner-s-guide-to-the-cares-act-final-.pdf
In addition, an existing EIDL may be refinanced into a PPP loan. If you ultimately receive a PPP loan or refinance an EIDL into a PPP loan, any advance amount received under the Emergency Economic Injury Grant Program would be subtracted from the amount forgiven in the PPP
This is an overview of key provisions of both programs, and additional details and governmental guidance are expected. For individualized guidance and advice, please contact N. Kane Bennett at 860-338-0428, Nate Baber at 860-381-9628, or Jonathan Shapiro at 203-561-6206.