Loans Available for Small Businesses under the CARES Act

EIDL

Economic Injury Disaster Loan

Beginning on April 3, 2020, small businesses are able to apply for Economic Injury Disaster Loans (EIDLs) for the temporary loss of revenue they experience as a result of the COVID-19 pandemic.  EIDLs:

  • are available to, with a few exceptions, businesses and nonprofit and veterans' organizations with fewer than 500 employees, sole proprietorships, independent contractors;

  • are direct loans from the Small Business Administration;

  • are available in amounts of up to $2 million per loan

  • offer an advance of up to $10,000, paid within 3 days of the date of application for the loan, which need not be repaid;

  • have an annual interest rate of 3.75% (2.75% for nonprofit organizations);

  • have terms of up to 30 years;

  • require a UCC lien and personal guarantee (for loans over $200,000);

  • may be used for any business operating expenses and financial obligations of the business, the payment of which has been affected by the disaster;

  • may not be forgiven; and

  • require that repayment begin one year after the loan date.

PPP

Payroll Protection Program

Beginning on April 3, 2020, small businesses are able to apply for Payroll Protection Program  (PPP) loans to cover employee salaries and commissions, health insurance premiums, rent, utilities, and payments of interest only on mortgages and any other debts incurred before February 15, 2020.  PPP loans:

  • are available to, with a few exceptions, businesses and nonprofit and veterans' organizations with fewer than 500 employees, sole proprietorships, and some self-employed individuals;

  • are loans from participating banks and credit unions;

  • are available in amounts of up to $10 million per loan but not in excess of 2.5 times the average monthly payroll costs for the prior year;

  • have an annual interest rate of 1%;

  • have a 2 year term;

  • may be used for interest payments only on mortgage and other financial obligations incurred before February 15, 2020, rent, utilities and payroll, which includes

    • employee and owner compensation below $100,000 per individual;

    • vacation pay and paid leave;

    • group health care benefits;

    • retirement benefits; and

    • state and local (but not federal) taxes on employee compensation;

  • may be forgiven in an amount equal to the sum spent on these costs during the 8 week period following the loan date; and

  • require that repayment begin one year after the loan date.

Note:

Important Things to Know:

   At present, $10 billion has been allocated for the EIDL and approximately $349 billion has been allocated for the PPP.  Although the PPP was scheduled to begin on April 3, 2020, many banks were not fully prepared to begin accepting applications.  A number of banks have limited applications to current customers with existing accounts.

   Under the PPP, the amount that may be forgiven could be reduced if the number of employee, or their compensation is decreased.

   The last day to apply for a PPP loan is June 30, 2020 provided that funds are still available; however, funds are being disbursed on a first come, first serve basis and businesses seeking loans should apply as soon as possible.

If your business needs assistance in completing the application, please contact Santiago Burger LLP.

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