Last Updated: April 24 at 3:01 p.m.
The CARES Act created two new programs though the Small Business Administration: the Paycheck Protection Program and the SBA Economic Injury Disaster Loan grant. More than $360 billion has been appropriated for these two programs. Here are answers to questions about the act.
What assistance can small businesses get through the Small Business Administration from the CARES Act?
The CARES Act creates two new grant programs through the Small Business Administration:
- The SBA 7(a) Paycheck Protection Program (PPP)
- The SBA Economic Injury Disaster Loan (EIDL) grant.
Paycheck Protection Program
The Paycheck Protection Program (PPP) loans are based on the average monthly payroll expenses of a business, multiplied by 2.5 and capped at $10 million. They are intended to cover expenses for a business during any eight-week period between February 15, 2020, and June 30, 2020, and can be used for payroll costs, rents, mortgage interest, and utilities. The PPP loans are unsecured loans requiring no collateral, no personal guarantee, and no necessity to show that credit is unavailable elsewhere. If a business owner maintains a certain level of payroll expenses and employee numbers during that eight-week period, the loan is 100% forgiven; as the number of employees goes below those levels, the forgivable amount is phased out.
Economic Injury Disaster Loans
Economic Injury Disaster Loans (EIDLs) are lower interest loans available for small businesses that have suffered economic harm during a declared disaster. Economic Injury Disaster Loans under the CARES Act are based on a business’s actual economic injury determined by the U.S. Small Business Administration (less any recoveries, such as insurance proceeds) up to $15,000. Applicants may be eligible to receive a $1,000-per-employee advance on their Economic Injury Disaster Loan up to a maximum of $10,000. The advance is forgivable, but to access it a business must first apply for an Economic Injury Disaster Loan and then request the advance. It is important to note that if the business also applied for a Paycheck Protection Program loan, that amount may be reduced by the amount of the Economic Injury Disaster Loan advance. Economic Injury Disaster Loans can be used to provide paid sick leave to employees unable to work due to COVID-19, maintaining payroll, meeting increased costs due to supply chain disruptions, rent or mortgage payments, and repaying debt obligations.
What is considered a small business?
The definition of small business under the CARES Act includes businesses that operate with 500 or fewer employees. Though the SBA has set different levels of employee numbers for certain industries, the administration does not currently consider any exceptions for employee numbers for real estate brokerages, property managers, appraisers, or other activities related to real estate.
What businesses are eligible for a Paycheck Protection Program (PPP) loan?
Any business that meets the definition of a small business under the SBA regulations, including businesses that employ not more than 500 employees, sole proprietors, independent contractors, and “gig economy” workers.
What is the deadline to apply for a PPP loan?
June 30, 2020.
Who is eligible for an Economic Injury Disaster Loan (EIDL)?
The CARES Act expanded EIDL eligibility for the period between January 31, 2020, and December 31, 2020, to include any small business or business with 500 or fewer employees (or an industry size standard above 500 set by the SBA) that experiences an economic hardship as a result of COVID-19. This includes sole proprietors, independent contractors, tribal businesses, and cooperatives.
A business must make a good-faith certification that it is suffering an economic injury due to the COVID-19 crisis.
To be eligible for an emergency economic injury grant, the applicant must be eligible for an EIDL and have been in operation since January 31, 2020, when the public health crisis was announced.
What about businesses with multiple locations?
Under the CARES Act, businesses with multiple physical locations that fall under the category of a hotel, restaurant, or bar covered by NAICS Code 72 (Accommodations and Food Services) that have 500 or fewer employees per physical location may qualify for PPP. However, if a single location has more than 500 employees then, that business may not qualify. The SBA has not yet clarified this point.
What about franchises?
Franchises that are assigned codes in the SBA’S Franchise Directory are considered their own entity, so those businesses will not need to combine employee numbers across all franchise locations. Franchises with 500 or fewer employees are eligible for the PPP loans.
Can I get an EIDL and a PPP Loan?
Yes, you can get both loans, but the key is to use the money to cover different expenses. The PPP loans require the borrower to certify that “the eligible recipient has not received amounts under this subsection for the same purpose and duplicative amounts.” If you’re getting an EIDL to cover payroll expenses, you can’t get a PPP to cover payroll for the length of the forgiveness period (eight weeks from when the loan is due). You would have to use the EIDL for different operating expenses or payroll for a different period. If you’ve already gotten an EIDL for payroll purposes but just want the PPP loan, you can refinance the loan into a PPP. Any amount that was given to you as a grant under the EIDL will reduce the amount forgiven under PPP.
How long will it take for loans to be disbursed?
The CARES Act was designed to make these loans faster and easier for lenders to approve and fund. For example, SBA lenders are delegated the authority to make and approve most loans with minimal agency interaction. Documentation requirements will be minimal, and it is presumed that a business has been negatively impacted by COVID-19 if it was operating on February 15, 2020, and had employees or paid independent contractors. EIDL emergency advance grants are to be distributed within three days of application, but the other programs do not have deadlines for lenders to disburse loans. However, the purpose of these new programs is to get funds to small businesses struggling to stay open and keep employees paid, so the CARES Act has provisions to reduce burdens in the processes and increase efficiency.
The relaxed standards are designed for fast approval, but keep in mind there will be unprecedented demand and lenders must implement the new rules.
Where can I find an SBA lender to get an SBA loan?
You can call your bank or find SBA-approved lenders in your area through the SBA online Lender Match Tool by going to sba.gov/paycheckprotection/find. In addition, you can reach out to a small business development center or a women’s business center, which provide counseling and training to small business owners, and they will provide free assistance and guide you to lenders.
The CARES Act also gives the Treasury and the SBA the authority to grant temporary SBA lender status to lenders that do not currently participate in the program, so the list of lenders will likely grow.
Where can I get individual counseling on SBA loans and programs for small businesses?
The SBA has several options for one-on-one assistance to small businesses. In addition to the SBA regional and district offices, there is a network of small business development centers and women’s business centers providing assistance finding lenders and choosing the right loan products. You can find links to lists of these organizations on the SBA’s Local Assistance page at sba.gov.