Emergency Assistance for Businesses with 500* Employees or Less
In order to help Small and Medium Size Businesses (SMBs) operate and pay employees during the COVID-19 pandemic, the government is rolling out massive assistance to SMBs. These steps include the Payroll Protection Program loan equal to 2.5 months of payroll that may not need to be repaid. A business can apply for both a PPP loan and the Economic Injury Disaster Loan (EIDL) loan, as long as the EIDL is used for a different purpose than paying payroll costs, health insurance, interest, mortgage, rent utilities. The EIDL can be used to pay accounts payable and other costs and for “meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains.
We’re recommending that you:
- Contact your local bank or an approved SBA lender and get an appointment as soon as possible.
- Prepare for your appointment by gathering all the documentation required to complete the forms.
- Consider also applying for an SBA Emergency Injury Disaster Loan EIDL SBA Form 5. Economic Injury Disaster Loan (EIDL) loan, as long as the EIDL is used for a different purpose than paying payroll costs, health insurance, interest, mortgage, rent utilities. The EIDL can be used to pay accounts payable and other costs and for “meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains.”
Compare the PPP (Payroll Protection Program) and EIDL (Economic Injury Disaster Loan)
How much cash can you get?
EIDL: Up to $2 million
PPP: Up to $10 million, or 2.5 times your total payroll expenses for the loan period
Loan interest rate:
EIDL: 3.75 percent. Interest rate on the loans will not exceed 4 percent per year and terms will not exceed 30 years.
PPP: The initial rate is 0.5 percent, but it may rise. It is capped at 4 percent.
EIDL: No, but first $10,000 is a grant.
PPP: Yes. Forgiveness covering the first eight weeks of the loan is possible if employers pay their expenses and maintain – or quickly rehire – employees and keep salary levels constant. Seventy-five percent of the amount given must be put toward payroll.
Can you apply for multiple SBA loans?
Yes, as long as the loans are being put to different uses. If you have an existing disaster relief loan through the SBA, it is possible to roll that loan into a PPP loan and have it forgiven as the program allows.
Where to apply for multiple SBA loans?
PPP: Through any existing SBA 7(a) lender or any federally insured depository institution, federally insured credit union and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved.
More Details about the Payroll Protection Program
Maximum Loan Amount
- The maximum loan amount will be 2.5x the average total monthly payroll cost for the prior 12 months up to $10 million. The interest rate will not exceed 4%.
Qualified Use of Loan Proceeds
- Payroll costs
- Continuation of health care benefits
- Employee compensation (for those making less than $100,000)
- Mortgage interest obligations
- Rent on any lease in force prior to February 15, 2020
- Interest on debt incurred before the covered period
Businesses Eligible to Obtain These Loans
- Businesses with fewer than 500 employees or
- Businesses with more than 500 employees if they are defined as ‘small’ by the SBA Size Standards. See the table here.
- 501(c)(3) nonprofits, 501(c)(19) veteran’s organization, and Tribal business with no more than 500 employees.
- Hotels, motels, restaurants, and franchises with fewer than 500 employees at each physical location without regard to affiliation
- Sole proprietors and independent contractors are also eligible for assistance
For the first 6 months to one year, all loan payments will be suspended (the deferment period). All or a portion of the loan principle may be forgiven. The amount of the loan forgiven will not be taxable income.
The amount eligible to be forgiven will depend on the average number of employees during the deferment period compared to the average number of employees the year before or in the early days of the current crises. (January 31 through June 30 of either 2019 or January 1, 2020 through February 29, 2020 – your choice)
The amount to be forgiven will be reduced proportionally by any reduction in average number of employees during the deferment period compared to the average employee count in the early part of 2019 or 2020. If the average employee count remains the same, up to 100% of the principle can be forgiven.
The program allows a reduction in employee pay up to 25% per employee without impacting the amount eligible to be forgiven.
However, the amount forgiven cannot exceed the amount of the loan proceeds used to pay payroll and benefits, rent (or mortgage payment) and utilities. We recommend depositing the loan proceeds into a separate bank account used to pay these allowable expenses only.
PPP Loan Application Process
Authorized SBA lenders can be found here or check with your current bank. Call your local banker first. This should speed up your application process.
Documentation Needed – Independent Contractors and Sole Proprietors
Gather your any payroll tax filings, tax returns, Forms 1099–MISC, and monthly income and expenses from the sole proprietorship for the past 12 months. The SBA will issue additional regulations within 15 days.
Other Assistance Included in the CARES ACT
- Employer-side payroll tax credits or deferral to eligible businesses paying Covid-19 related sick leave and FMLA leave
- Small dollar Emergency EIDL grants of $10,000 or less
- Subsidies for existing SBA loan payments, payment deferments as well as extended maturities
- Early withdrawal penalties for IRA and Retirement Plan withdrawals up to $100,000 are waived if related to Covid-19
- Favorable changes to bankruptcy rules
- Favorable changes to net operating loss rules
- Favorable changes to the excess business interest rules