Quick Guide: Breaking Down the CARES Act - SBA Relief Programs
Paycheck Protection Program & SBA Disaster Loan Advance
**Updated: 4/15/2020
After talking with many small business owners over the last few days, I wanted to break down the CARES Act and detail what funding was available to most business owners that have less than 500 employees. As presented by the government, the relief package is made up of loans, and most business owners immediately think, “I don’t need another loan right now!”, but in reality the majority of these loans will not require repayment.
There is a lot of information and detail in terms of who is eligible, the loans available and what amount is forgiven, so I wanted to provide a simplified breakdown as a reference guide that will hopefully lead you to reading more about the programs and asking your trusted business advisor (accountant, financial advisor) to help determine your eligibility.
Paycheck Protection Program
Who is eligible?
Businesses owners with less than 500 employees (includes non-profits)
Self-employed or sole proprietor (schedule C on tax return)
1099 employee (sub-contractor, Uber driver, freelance professional, etc.)
Loan amounts
Average monthly payroll costs x 2.5
Payroll costs including...salary, wages, commission, cash tips & sum of payments to (or income of) a sole-proprietor or independent contractor (1099s) that is not more than $100k in a year
Payments deferred 6 months
Loan forgiveness
Amounts used within 8 weeks of approval...payroll (must be 75% of loan), interest (on mortgage), rent, utilities
Forgiveness will be affected if number of employees are reduced and/or pay decreases...designed to keep employees fully employed
Forgiveness is not taxable to borrower
Loan parameters
1% interest rate, 2-year term
How to apply?
Through an approved SBA 7(a) lender (bank)
There are several nuances, rules, and guidelines that are not covered here. This serves as a quick guide for you to learn more to determine exact eligibility regarding the loan and its forgiveness.
Economic Injury Disaster Loan and Emergency Advance
Who is eligible?
Businesses owners with less than 500 employees (includes non-profits)
Self-employed or sole proprietor (schedule C on tax return)
1099 employee (sub-contractor, Uber driver, freelance professional, etc.)
Loan Parameters
The maximum EIDL is a $2 million working capital loan...3.75% for businesses and 2.75% for nonprofits with up to a 30-year term
Payments on Coronavirus EIDL loans are deferred for one year (interest accrues)
Up to $200,000 can be approved without a personal guarantee
Approval can be based on a credit score and no first-year tax returns are required
EIDL loan is NOT forgivable, like the PPP loan, however more flexible terms of use
Emergency $10,000 Grant
Eligible applicants for an EIDL can receive a $10,000 emergency grant within three days of application (through Dec. 31)
**Updated 4/15/2020 from SBA.gov: To ensure that the greatest number of applicants can receive assistance during this challenging time, the amount of your Advance will be determined by the number of your pre-disaster (i.e., as of January 31, 2020) employees. The Advance will provide $1,000 per employee up to a maximum of $10,000.
There is no obligation to repay the grant
To receive the $10,000 emergency grant, it is not necessary to have an approved EIDL loan
How to apply?
References:
https://covid19relief.sba.gov/#/
https://www.sba.gov/article/2020/mar/02/100-most-active-sba-7a-lenders
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