The below information is a streamlined and bullet pointed break down of the the Payroll Protection Program that was just released as part of the CAREs act for United States citizens and small businesses in the U.S.
After seeing a lot of clickbait on this where people really weren’t answering the simple questions, I decided to go ahead and research this myself. After about 3 hours I was able to find all the answers. So I just wanted to publish the basics that you need to know now without having to click anything else and know exactly what your options are without the B.S.
All the information below is a concise explanation of what you’ll find in the The Small Business Owner’s Guide to the CARES Act provided by U.S. Senate Committee of Small Business and Entrepreneurship.
Right now, it appears there are two clear cut options, the EIDL and the PPP. Please note that businesses cannot get both EIDL and PPP loans at the same time. You can apply for the EIDL loan now and the PPP loan when it becomes available. If you qualify and accept the EIDL loan, and you subsequently qualify for the PPP loan, you can re-finance the EIDL loan with the PPP loan, OR you can apply for both loans and decide which one you take if you qualify for both. Loans are limited to one per Taxpayer Identification Number.
Let’s start with the seemingly better of the two options:
Needing capital that can be forgiven to cover the cost of retaining employees? Then the Paycheck Protection Program (PPP) might be right for you.
WHAT IS THE Paycheck Protection Program (PPP)?
The program would provide cash-flow assistance through 100 percent federally guaranteed loans to employers who maintain their payroll during this emergency. If employers maintain their payroll, the loans would be forgiven, which would help workers remain employed, as well as help affected small businesses and our economy snap-back quicker after the crisis.
PPP has a host of attractive features, such as forgiveness of up to 8 weeks of payroll based on employee retention and salary levels, no SBA fees, and at least six months of deferral with maximum deferrals of up to a year. Small businesses and other eligible entities will be able to apply if they were harmed by COVID-19 between February 15, 2020 and June 30, 2020. This program would be retroactive to February 15, 2020, in order to help bring workers who may have already been laid off back onto payrolls. Loans are available through June 30, 2020.
QUESTION: What types of businesses and entities are eligible for a PPP loan?
Answers:
- Businesses and entities must have been in operation on February 15, 2020.
- Small business concerns, as well as any business concern, a 501(c)(3) nonprofit organization, a 501(c)(19) veterans organization, or Tribal business concern described in section 31(b)(2)(C) that has fewer than 500 employees, or the applicable size standard in number of employees for the North American Industry Classification System (NAICS) industry as provided by SBA, if higher.
- Individuals who operate a sole proprietorship or as an independent contractor and eligible self-employed individuals.
- Any business concern that employs not more than 500 employees per physical location of the business concern and that is assigned a NAICS code beginning with 72, for which the affiliation rules are waived.
- Affiliation rules are also waived for any business concern operating as a franchise that is assigned a franchise identifier code by the Administration, and company that receives funding through a Small Business Investment Company.
QUESTION: Where do you get this loan? A Bank that does SBA 7(a) Loans, underwritten by the SBA. You’ll contact your banker directly.
QUESTION: How much can I borrow? The maximum loan size is $10 million. The calculation is as follows:
- 2.5x the average monthly “payroll” costs, measured over the 12 months preceding the loan origination date. Seasonal business may use the period February 15, 2019 – June 30, 2019 or March 1, 2019 – June 30, 2019 to calculate the average payroll
- If you took out the EIDL loan between February 15, 2020 and June 30, 2020 and you want to refinance that loan into a PPP loan, you would add the outstanding loan amount to the “payroll” sum.
QUESTION: What’s is the interest rate? Exact details have not been release except for that will not exceed 4%.
QUESTION: What is the term of the loan? 10 Years.
QUESTION: When is the first payment? At least six months after the loan origination date (interest is accrued during the deferment)
QUESTION: What can I use this loan for? Payroll costs (as defined below), group healthcare benefits, insurance premiums, and interest (but not principal) on mortgages or other debt incurred prior to February 15, 2020, rent on any lease in force prior to February 15, 2020 and utility payments.
Payroll includes salaries, commissions, tips, certain employee benefits (including health insurance and retirement benefits), state and local taxes and certain types of compensation to sole proprietors or independent contractors. Payroll costs specifically exclude compensation of an individual employee in excess of an annual salary of $100,000, foreign employees, FICA and income tax withholdings
QUESTION: Do I need a down payment or any collateral? No collateral is required from either the business or its owners.
QUESTION: Is a personal guarantee required? No.
QUESTION: Is this loan forgivable? Yes – calculated as the amount spent by the borrower during an 8-week period after the origination date of the loan on: payroll costs (as defined above), interest payment on any mortgage incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020. Payroll costs are subject to the same exclusions as noted above
QUESTION: Can I apply now (as of 3/30/2020)? No. Now that the CARE Act is law, the SBA will give their loan guidelines to the banks. The banks will then prepare their loan application process. We expect this to take at least two weeks
Need a quick infusion of a smaller amount of cash to cover you right now? You might want to look into an Emergency Economic Injury Grant (EIDL) instead…
WHAT IS THE Emergency Economic Injury Grant (EIDL)?
These grants provide an emergency advance of up to $10,000 to small businesses and private non-profits harmed by COVID-19 within three days of applying for an SBA Economic Injury Disaster Loan (EIDL). To access the advance, you first apply for an EIDL and then request the advance. The advance does not need to be repaid under any circumstance, and may be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments.
QUESTION: What is an EIDL and what is it used for?
Answer: EIDLs are lower interest loans of up to $2 million, with principal and interest deferment at the Administrator’s discretion, that are available to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses.
QUESTION: Who is eligible for an EIDL?
Answer:
- Those eligible are the following with 500 or fewer employees:
- Sole proprietorships, with or without employees
- Independent contractors
- Cooperatives and employee owned businesses
- Tribal small businesses Small business concerns and small agricultural cooperatives that meet the applicable size standard for SBA are also eligible, as well as most private non-profits of any size.
QUESTION: Where do you get this loan? A Bank that does SBA 7(a) Loans, underwritten by the SBA. You’ll contact your banker directly.
QUESTION: How much can I borrow? The maximum loan size is $10 million. The calculation is as follows:
- 2.5x the average monthly “payroll” costs, measured over the 12 months preceding the loan origination date. Seasonal business may use the period February 15, 2019 – June 30, 2019 or March 1, 2019 – June 30, 2019 to calculate the average payroll
- If you took out the EIDL loan between February 15, 2020 and June 30, 2020 and you want to refinance that loan into a PPP loan, you would add the outstanding loan amount to the “payroll” sum.
QUESTION: What’s is the interest rate? 3.75% for businesses, 2.75% for non-profits
QUESTION: What is the term of the loan? Up to 30 years
QUESTION: When is the first payment? One year after the loan origination date (interest is accrued during the deferment)
QUESTION: What can I use this loan for? Any financial obligations and operating expenses that could have been met had the disaster not occurred
QUESTION: Do I need a down payment or any collateral? The SBA will place a UCC lien against the assets of the business.
QUESTION: Is a personal guarantee required? Yes, for loans > $200,000, owners of > 20% of the business, managing members of LLCs, managing partners of LPs. However, no liens will be taken against real estate owned by the guarantor
QUESTION: Is this loan forgivable? No
QUESTION: Can I apply now (as of 3/30/2020)? Yes, the application process is live, and loans are available now. There is no obligation to accept the loan if you qualify. The SBA typically allows 60 days to accept the loan offer, but you can always extend this if needed. Therefore, it is better to apply ASAP. Application processing takes 2-3 weeks plus an additional 5 days for funding
Sources:
Download:The Economic Injury Disaster Loan (EIDL) Program vs The Paycheck Protection Program (PPP)
