Many financial institutions, both private and federal, are offering relief to businesses suffering substantial economic injury as a result of the Coronavirus. The SBA has implemented a new loan program called the Paycheck Protection Program to allow certain for-profit or not-for-profit organizations with 500 or fewer employees to be included. As historically established by the SBA, the small business designation still includes traditional smaller sized operations, sole-proprietors, independent contractors and other self-employed individuals and there are programs specific to these entities.
Paycheck Protection Program (PPP)
The PPP assists businesses, not-for-profit organizations, and self-employed individuals in retaining their employees by providing financial support for certain operational expenses. The key aspects of the program are located on the Paycheck Protection Program Resource Page on the SBA website. While the PPP application may be available to complete, you will need to work with your banking relationship manager with application processing and submission.
***UPDATE JUNE 5, 2020*** – On Friday, June 5, 2020, the President has just signed into law the Paycheck Protection Program Flexibility Act, which will make the program’s lending terms more favorable to loan recipients. See how the new legislation could affect you.
PPP Loans maybe 100% forgivable if the funds are used predominately on payroll costs and other costs, such as; mortgage obligations, lease agreements, or utilities. In addition, there are requirements that employee headcount stays consistent with pre-COVID-19 levels. The details of such calculations are outside the scope of this article; however, the calculation’s inputs and ultimate debt forgiveness will impact an organization’s tax reporting. Learn how the PPP could affect your business deductions.
Economic Injury Disaster Loan (EIDL) and Emergency Economic Injury Grants Program
Emergency Economic Injury Grants provide an emergency grant advance of up to $10,000 for small businesses and non-profits that apply for the EIDL. The grant advance does not need to be repaid. EIDLs are available to small businesses, small agricultural cooperatives, small aquaculture businesses, and most not-for-profit organizations. The key aspects are as follows:
- The EIDL provides working capital loans of up to $2 million.
- Funds may be used to pay fixed debts, payroll, accounts payable, and other bills that could have been paid had the disaster not occurred and are not intended to replace lost sales or profits or for expansion.
- The loans carry an interest rate of 3.75% for small businesses and 2.75% for nonprofits.
- Loan repayment terms (up to 30 years) vary by applicant. Loans will be provided directly through the SBA via an application on the SBA website.
The EIDL application is available through the SBA website.
Small Business Debt Relief Program
It’s important to note that in addition to the PPP and EIDL loan programs, the SBA does offer immediate relief to small businesses with non-disaster SBA loans. These loans cover all loan payments, including principal, interest and fees for six months on traditional programs such as 7(a), 504 and microloans. For more information, please visit the SBA Disaster Assistance resource page through the SBA website.
Main Street Lending Program
On April 9, 2020, the Federal Reserve announced it would provide up to $2.3 trillion in loans to support the economy, in an effort to assist households, employers, and state and local governments during the coronavirus pandemic. One of the most significant components of this effort is the Main Street Lending Program, which will provide $600 billion in loans through financial institutions to small and mid-sized businesses battling the financial impact of the coronavirus. To read more about this new loan program, visit our Introducing the Main Street Lending Program article on our website.
We hope this summary will point you in the right direction. We are committed to providing you with the information and resources needed to make informed decisions for the future of your organization. As always, we strongly encourage you to talk to your accountant, financial advisor, insurance agents, and legal counsel to decide what’s right for you. We will continue to update this article with new information as it becomes available.
Please do not hesitate to contact us with any questions. Stay safe and healthy!