On Friday, March 27, 2020, the United States House of Representatives passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This major stimulus package helps small businesses keep employees on payroll during the COVID-19 pandemic and resulting economic downturn. The CARES Act provides up to $349 billion in federally guaranteed loans for qualified small businesses and nonprofits.
Understanding Your Options
The new and revised loans can be confusing, and many small business owners aren’t sure which one fits their needs. This summary outlines the available programs to help you make informed decisions. Keep in mind that some states are also offering their own rapid recovery loans.
Paycheck Protection Program (PPP)
The Paycheck Protection Program (PPP) introduces a new type of Section 7(a) loan, guaranteed by the Small Business Administration (SBA). It’s designed for small businesses with up to 500 employees that need funds to retain staff during this critical period. Applications are open until June 30, 2020.
Loan Amount
You can borrow up to 2.5 times your average monthly payroll, with a maximum of $10 million.
Eligibility
Your business must:
- Have been operating on or before February 15, 2020.
- Have paid salaries, payroll taxes, or contractors (Form 1099-MISC).
- Employ 500 or fewer people.
- Genuinely need the loan to maintain operations.
Include sole proprietors, independent contractors, and certain self-employed individuals.
Features and Benefits
- Fixed interest rate of 4% per year.
- Payments deferred for 6 to 12 months.
- Loan forgiveness for costs during the 8 weeks after disbursement (including payroll under $100,000 per employee, rent, mortgage interest, and utilities).
- No personal guarantee, collateral, or prepayment penalties.
- No requirement to prove you can’t get credit elsewhere.
As long as you use the funds properly, the SBA won’t pursue repayment penalties.
How to Apply
The SBA is currently providing PPP guidelines to lenders. Applications will soon be available through commercial banks and possibly Fintech lenders. If your business already works with an SBA-approved bank, reach out to that bank first.
Economic Injury Disaster Loan (EIDL)
The Economic Injury Disaster Loan (EIDL) program existed before the CARES Act but was expanded to offer faster relief. If you need a smaller, immediate cash infusion, this loan may be right for you.
Loan Amount
You can borrow up to $2 million.
Eligibility
Eligible applicants include:
- Businesses with fewer than 500 employees.
- Sole proprietors and independent contractors.
Cooperatives, ESOPs, and tribal small businesses with under 500 employees.
Features and Benefits
- No personal guarantee for loans under $200,000.
- Terms up to 30 years.
- Fixed interest rate of 3.75% for small businesses.
- Collateral required; the SBA will place a lien on business assets.
- Can be used for financial obligations and operating expenses the business could have met if not for the disaster.
- Must have been operational as of January 31, 2020.
- No need to show you were unable to obtain credit elsewhere.
- Approval may be based on credit score instead of a tax return.
Applicants can request an emergency advance of up to $10,000 within three days of applying. This advance doesn’t need to be repaid and can be used for payroll, sick leave, increased production costs, rent, mortgage, or other obligations.
How to Apply
You can apply for an EIDL through any SBA lender or begin your application here.
Note: You can’t receive both an EIDL and a PPP loan simultaneously. However, you may apply for the EIDL now and the PPP when it becomes available. If you later qualify for the PPP, you can refinance your EIDL into it to access the loan forgiveness benefits.
Existing SBA Loans
If you already have an SBA-backed Section 7(a) loan, the SBA will cover six months of principal, interest, and fees. Payments will resume after that period, but you won’t owe the lender or SBA for the payments made on your behalf.
Final Note
This information is intended to guide our clients, but final loan terms and conditions depend entirely on the lenders. Stay informed, act quickly, and consult your financial advisor or lender to determine which relief option fits your business best.
