Small businesses across the country run America. More people are employed by small businesses than any other size. It makes sense that to help the economy fight COVID-19 with the CARES Act, small businesses are a focus. I have listened to several webinars from national CPA firms about Small Business Administration (SBA) changes and these new programs. I have attached my notes and information from the SBA on current SBA loans, Economic Injury Disaster Loans (EIDL), Paycheck Protection Program (PPP) and the Employee Retention Tax Credit.
Current SBA Loans
All current SBA loans will have their principal and interest paid by the government for six months starting April 2020, on all current loans. Nothing has to be done to qualify for this, as it is automatic.
Economic Injury Disaster Loan (EIDL)
Eligibility – Companies with not more than 500 employees, including cooperatives, ESOPs, nonprofit organizations, sole proprietors, the self-employed and independent contractors.
How the loan can be used – Pay fixed debts, payroll, accounts payable and other bills that cannot be paid because of the disaster’s impact.
Maximum Loan – Up to $2,000,000
Interest Rate – 3.75% for profit; 2.75% for non-profit
Term – Case-by-case up to 30 years; Payments are deferred for one year.
Personal Guarantee – Loans over $200,000 will require a personal guarantee.
Collateral – Collateral required on EIDL over $25,000; UCC on all business assets and possibly real estate.
Forgiveness – An advance of $10,000 will be provided as a grant within three days of application and is not required to be repaid if the loan is denied.
You do not need a bank to access this loan. Apply at: https://covid19relief.sba.gov/#/
Paycheck Protection Program (PPP)
Eligibility – Companies with no more than 500 employees, or their applicable employee size standard for their North American Industrial Classification System, 501(c)(3) non-profits with fewer than 500 employees, sole proprietors, the self-employed and independent contractors. Must have been in operation as of February 15, 2020.
How the loan can be used – Payroll, group health benefits, salary, employee commissions, interest on mortgages, rent, utilities and interest on debt incurred before February 15, 2020. Payroll must be 75% of the amount used.
Maximum Loan Amount – The lessor of $10,000,000 OR
For companies that have been in business for a year: The average monthly payroll for the preceding twelve months multiplied by 2.5 OR
For seasonal businesses: The average monthly payroll costs for a twelve-week period from March 1, 2019 through June 30, 2019 multiplied by 2.5 OR
For companies that were not in business before the period February 15, 2019 – June 30, 2019:
The average monthly payroll for the period January 1, 2020 through February 29, 2020 multiplied by 2.5; and the outstanding amount of any emergency loan made from January 30, 2020 until March 7, 2020.
Limitations on Payroll – Payroll costs excludes compensation paid to individuals including the self-employed, above 100,000.
Interest Rate – 0.50%
Payment Term – 2 years, deferment for up to one year.
Forgiveness – Equal to the amount spent by the borrower during an eight-week period after the origination date of the loan on payroll costs, interest payment on any mortgage, rent, utilities, or other interest. Forgiveness amount will be reduced by multiplying the loan amount by Current FTEs divided by FTEs from February 15, 2019 to June 30, 2019; or FTEs from January 1, 2020 to February 29, 2020. Additionally, forgiveness amount is reduced by pay reductions in excess of 25%.
Apply through your bank or another authorized bank.
You cannot apply for the EIDL and PPP for the same purposes. EIDL should be for working capital; PPP for payroll.
You should keep PPP funds in a separate account from any other funds to easily create a paper trail that the funds were used as designed in order to qualify for loan forgiveness.
Employee Retention Tax Credit
Eligibility – Employers whose operations have been fully or partially suspended by government order, or who have a 50% or greater drop in revenue in the same quarter vs previous year due to COVID-19.
Credit – 50% of up to $10,000 in wages paid by employer. Wages eligible are paid between March 12, 2020 through January 1, 2021.
NOTE: Participation in the PPP or EIDL will not allow the business to be eligible for this credit.