CARES Act Info
Last week, the federal government passed the Coronavirus Aid, Relief, and Economic Stimulus Act (called the “CARES Act”), which has some helpful provisions for small businesses.
New SBA Loan Program: Among other things, the CARES Act creates a program of federally guaranteed loans for small businesses, to provide funds for payroll and other expenses during the coronavirus crisis. The loans will be provided through the Small Business Administration, and will be made by local banks and other financial institutions. I know that Bank of America and Exchange Bank are making loans through the program; whoever your bank is, there is a good chance they will also be doing so.
The only requirements to qualify for a loan are: (1) you must be a small business (fewer than 500 employees); (2) your business was in operation on 2/15/20; and (3) as of 2/15/20, you had employees for whom you paid salaries and payroll taxes, or you paid independent contractors for services. You will not be required to put up collateral or to provide any personal guarantees, and there are no loan fees.
The maximum amount of the loan size is two and a half times your average monthly payroll costs during the one-year period before you get the loan. “Payroll costs” includes salaries, wages or similar compensation (including payments to independent contractors); cash tips; payments for your part of state and local taxes assessed on employee compensation; and payments for benefits such as health insurance, benefits, retirement benefits and vacation. Therefore, as an example, if you apply for a loan on 4/1/20, your average monthly payroll cost is the total amount you spent on the items included in the above definition of “payroll costs” from 4/19 through 3/20, divided by 12. That amount multiplied by 2.5 is the maximum amount of a loan you can get.
You can use the loan funds for payroll costs, rent, utilities, and interest on mortgages. The loan will be forgiven in an amount equal to the amount you spend on those items during the 8-week period after the origination date of the loan.
The amount forgiven will be reduced if you lay off employees between 2/15/20 and 6/30/20, unless you then re-hire those workers (or the same number of workers). In that case, there is no reduction in the amount forgiven.
In other words, you can get a loan for an amount equal to two and one half times your average payroll costs, and however much of the loan funds you spend on payroll costs, rent, utilities, and mortgage interest in the eight weeks after you get the loan – up to the full amount of the loan - that amount will be forgiven and you will never have to repay it.
Small Business Debt Relief: If you already have an SBA loan, the CARES Act requires the SBA to pay all principal, interest, and fees on the loan for six months
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Emergency EIDL Grants: There is also a provision that makes it easier for a small business to apply for an Economic Injury Disaster Loan (“EIDL”), a type of working capital loan offered by the SBA. The bill eliminates a number of the requirements for obtaining such a loan, and a credit score may be all that is needed. EIDL loans are not subject to forgiveness like the loans described above, although there may be a way to convert an EIDL loan to the forgiveness type of loan (I need to figure that out). The benefit to the EIDL loan is that a business applying for an EIDL loan can get an advance in the form of an Emergency Grant of $10,000, which must be paid to the applicant within 3 days. Also, applicants are not required to repay the grant, even if they are subsequently denied an EIDL loan.