Paycheck Protection Program and Economic Injury Disaster Loan Program Receive Additional Funding
/On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law. The CARES Act created, among other things, the Paycheck Protection Program (PPP) Loan and enhanced the Economic Injury Disaster Loan (EIDL) with an advance (grant). However, the funds available for the PPP and EIDL were depleted within about two weeks. On April 24, 2020, a new bill (called the Paycheck Protection Program and Health Care Enhancement Act) was signed into law that added a much needed additional $310 billion into the Paycheck Protection Program and Economic Injury Disaster Loan. This round of funding became available as of this morning and is projected to last two weeks. The SBA began processing PPP applications again today. The SBA has not yet reopened the EIDL application portal, however. If you did not receive funding during the first tranche, it would be wise to submit your application or confirm your bank is resubmitting your application as soon as possible. Below is additional information about each program.
Paycheck Protection Program Loan
Small businesses can apply for a paycheck protection program loan in an amount up to 2.5 times the business’ average monthly payroll costs in 2019 (2020 if the business did not start until after June 30, 2019), not to exceed $10 million. At least 75% of the loan proceeds must be used for payroll while the remaining 25% may be used for rent, utilities, as well as interest on debt obligations (as long as the debt obligation was incurred before February 15, 2020). Borrowers are eligible for loan forgiveness on payroll, mortgage interest, rent and utility costs that are paid during the 8 week period following loan origination if the employer does not reduce salaries by more than 25% AND if the employer does not lay off employees, or brings back previously laid-off employees before June 30, 2020. The amount of forgiveness goes down as the amount of employees laid off goes up. To obtain loan forgiveness, the borrower would have to apply for the loan forgiveness at a later date. Further guidance on that process should be available this week. Any amounts not forgiven are paid off over a term of 2 years at an interest rate of 1%.
Small businesses can resubmit applications for the PPP loan starting today. It is first come, first served on these loans so it would be wise to get your application in sooner than later. To apply, you’ll need to submit your application directly to a bank that is an active SBA lender.
Economic Injury Disaster Loan and Grant
Small businesses experiencing economic injury can apply directly to the SBA for an Economic Injury Disaster Loan of up to $2 million with a term of up to 30 years and interest rates of 3.75% for for-profit businesses and 2.75% for nonprofits. Collateral may be required on loans greater than $25,000. Personal guarantees would be needed for loans greater than $200,000.
This program now offers an emergency advance of up to $10,000 ($1,000 per employee) to small businesses which will be treated as a grant that does not need to be repaid. To access the grant, you would need to apply for the Economic Injury Disaster Loan and then request the advance. The advance does not need to be repaid under any circumstance. The advance may be used for payroll, paid sick leave, increased costs due to supply chain disruptions, or to pay business obligations, including debts, rent and mortgage payments. To be eligible for the advance, the business must have been in operation since January 31, 2020 or earlier.
An applicant must apply directly with the SBA on the SBA website. The application portal is currently closed but it may be reopened soon due to the additional tranche of funding made available this morning.
Please note that if you apply for and are approved for both the Economic Injury Disaster Loan/Grant (EIDL) and the Paycheck Protection Program (PPP) Loan, it will be possible to refinance an EIDL into a PPP loan. If you ultimately receive a PPP loan or refinance an EIDL into a PPP loan, any advance amount/grant received under the Emergency Economic Injury Grant Program would be subtracted from the amount forgiven under the PPP loan. However, you cannot use your EIDL for the same purpose as your PPP loan. For example, if you use your EIDL to cover payroll for certain workers in May, you cannot use the PPP loan for payroll for those same workers in May, although you could use it for payroll in April or for different workers in May.