If you're a small business owner, the hot topic this week has been the CARES Act, which is the economic stabilization (or stimulus) package which Congress recently passed, and President Trump signed into law. The highlight of this bill has been the various loans and programs available to assist small businesses during this time of crisis caused by the coronavirus. In this week's Freedom Friday blog, we're going to take a deep dive into some of the different loan programs offered to small businesses in the CARES Act.
There are two different loan programs being offered through the Small Business Administration (SBA). The first is the Economic Injury Disaster Loan (EIDL) program. This loan program has been available previously, but the SBA has removed all the prior conditions. For instance, there is no more “Credit Elsewhere” test, and no requirement for a personal guaranty or collateral. Also, even if you do not qualify for an EIDL loan, you may qualify for an automatic grant of up to $10,000 for working capital available within three (3) days of your application being processed. What is required is you must be a small business of less than 500 employees, and that includes nonprofit organizations, self-employed individuals and independent contractors. The maximum amount you can qualify for is $2 million, and the SBA will determine how much you can qualify for based on your small business's gross revenues and costs of goods sold in the prior year. There is no loan forgiveness for this program, but the funds are available now, and the terms of the loan will be 3.7% for 30 years, with no payment due for at least six (6) months. These loans must be used for working capital, i.e. payroll, rent, mortgage, utility payments, and other fixed debts.
The other loan program is the Paycheck Protection Program (PPP) loan program, which authorizes up to $349 billion in forgivable loans for small businesses to pay their employees during the coronavirus crisis. These loans provide up to $10 million, but the loans will be forgiven so long as the loan proceeds are used to pay for working capital, i.e. payroll, rent, and mortgage costs over the eight (8) week period after the loan is made; and employee and compensation levels are maintained. Payroll costs are capped at $100,000 per employee, and it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. Loan payments for this loan are also deferred for six (6) months. These loans are available until June 30, 2020, and payroll costs include not just salary and wages, but also employee benefits, and taxes. For this loan, you will also need to apply for loan forgiveness separately. Such a request will include documentation to verify the number of employees and pay rates, as well as any payments made on mortgages, rent, and/or utility obligations. You will need to certify these documents are true and that you used the forgiven amount to keep your employees and make the mortgage, rent and/or utility obligation payments. Your lender must decide on forgiveness within 60 days. However, the loan is due in 2 years. Again, there is no requirement for collateral or a personal guaranty. You will need to make a good faith certification that the loan is necessary to continue your operations as a small business, the funds will be used to retain employees, maintain payroll, and to make mortgage, rent, or utility payments, and that you will not receive another loan under this same program.
If you would like assistance in applying for either of these loan programs, Liberty Legal Solutions, LLC, is here to help. For more information on SBA loan assistance, or our outside general counsel programs, please contact me at [email protected].
If you would like more information about Liberty Legal Solutions, LLC, please visit our website at http://www.libertylegalok.com