Everything you need to know about the Paycheck Protection Loan and the SBA Economic Injury Disaster Loan programs.
The coronavirus pandemic has created uncertainty and stress for many American small businesses. Part of the government’s response to assist businesses during this time is the recent passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
With a massive $2 trillion allocated for businesses, individuals, federal agencies, and state and local governments, the CARES Act has been designed to distribute capital quickly and broadly. There are a number of provisions that impact small businesses. Here’s a breakdown of what you need to know:
This section was updated on 3/31/20 to reflect new information.
The Paycheck Protection Program, one of the largest sections of the CARES Act, is the most important provision in the new stimulus bill for most small businesses. This new program sets aside $350 billion in government-backed loans from private banks that can, in some cases, be converted to grants, which means that if you meet the requirements you won't need to pay the loan back. You can read our full story on the Paycheck Protection Program here.
Paycheck Protection loans will come from private banks. Currently, the SBA guarantees small business loans that are given out by a network of more than 800 lenders across the U.S. The Paycheck Protection Program creates a type of emergency loan that can be forgiven when used to maintain payroll through June and expands the network beyond SBA so that more banks, credit unions and lenders can issue those loans. The basic purpose is to incentivize small businesses to not lay off workers and to rehire laid-off workers that lost jobs due to COVID-19 disruptions.
The Paycheck Protection Program offers loans for small businesses with fewer than 500 employees, select types of businesses with fewer than 1,500 employees, 501(c)(3) non-profits with fewer than 500 workers and some 501(c)(19) veteran organizations. Additionally, the self-employed, sole proprietors, and freelance and gig economy workers are also eligible to apply. Businesses, even without a personal guarantee or collateral, can get a loan as long as they were operational on February 15, 2020.
The maximum loan amount under the Paycheck Protection Act is $10 million, with an interest rate of 1%. No personal guarantee or collateral is required for the loan. The lenders are expected to defer fees, principal and interest for no less than six months and no more than one year.
Yes, small businesses that take out these loans can get some or all of their loans forgiven. Generally speaking, as long as employers continue paying employees at normal levels during the eight weeks following the origination of the loan, then the amount they spent on payroll costs (excluding costs for any compensation above $100,000 annually), mortgage interest, rent payments and utility payments can be combined and that portion of the loan will be forgiven.
Banks are still getting the program up and running so check with your local bank to see if they have the program in place. Banks that are already approved SBA lenders may be quicker to get the loan program in place. The Treasury Department has released more details on the loans here. You can also see the loan application here. You will apply for the loan at your bank.
To learn more about Payroll Protection Loans read the U.S. Chamber's Guide to Emergency Coronavirus Loans.
Neil Bradley, executive vice president and chief policy officer at the U.S. Chamber of Commerce, explains the Paycheck Protection Loan — National Small Business Town Hall, held on April 3 by the U.S. Chamber of Commerce and Inc.
This section was updated on 3/31/20 to add new information.
Another important aspect of the CARES Act for small businesses is that it expands eligibility for the SBA’s Economic Injury Disaster Loans (EIDLs). In early March, the SBA’s disaster loan program was extended to all small businesses affected by COVID-19, but the CARES Act opens this program up further and makes it easier to apply. These loans come directly from the SBA and you can apply for one here.
These changes include:
Yes, small businesses can get both an EIDL and a Paycheck Protection Program loan as long as they don’t pay for the same expenses. However, be sure to check with your financial advisor or lender before taking both types of loans if you are not sure of the specifics.
The CARES Act makes select changes to taxes and tax policies in order to ease the burden on businesses impacted by COVID-19.
