Opportunities for Small Businesses

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the largest economic bill in U.S. history, was signed into law. As part of the CARES Act, there are currently two loans available to small businesses for relief from the economic impacts of COVID-19 that business owners should consider, as these loan programs offer loan forgiveness when the loans are used to maintain payroll and cover expenses such as mortgage, rent, and utilities.

Please note: Federal and state agencies are currently still undertaking the process of working out implementation details for these loan programs, and the newly-created bank application mechanisms are still in a state of flux. Your Roundview advisors are monitoring the situation, and we welcome the opportunity to help guide you in the coming days and weeks. 

The likely more attractive program is the Paycheck Protection Program (PPP).

Under the PPP, the amount of the loan that is forgivable is the sum of the payroll costs, mortgage interest payment, rent, and utilities incurred or paid by the borrower during the 8-week period beginning on the loan origination date. In addition, the loan forgiveness applies for up to the full principal amount of the loan. However, not more than 25% of the forgiven amount may be for non-payroll costs.

The U.S. Treasury has set up a webpage with more information on the new Paycheck Protection Program, including application information. We expect that page to have the most updated information about this program.

The second loan program is the Economic Injury Disaster Loan (EIDL) Program, which is very similar, but with loan forgiveness capped at $10,000.

Unlike other types of disaster loans, the forgivable loans under both of these programs are not tied directly to proving losses suffered during the national disaster — there is a presumption of negative impact from COVID-19. As long as you can make a good-faith certification that your business needs such a loan in order to continue regular operations, you may be eligible to participate.

Both loans, the Paycheck Protection Program Loan and the Economic Injury Disaster Loan, can be applied for concurrently, but both cannot be accepted for the same purpose. If you accept the EIDL loan, but later are also approved for a PPP loan, you may roll the EIDL loan balance into the PPP loan.

See below for more details on both of these programs. Please contact us if you’d like to discuss these opportunities and how they could apply to your small business.

Paycheck Protection Program (PPP) Loan Details

  • Small businesses with 500 employees or fewer
  • Self-employed individuals, sole proprietors, and gig economy workers
  • Most non-profits, including those with 501(c)(3) designations and fewer than 500 employees

Loan Provisions

  • Loans can equal 250% of an employer’s average monthly payroll up to $10 million with terms not exceeding 2 years.
  • Interest rates have been set at 1%.
  • Covered payroll costs include salary, wages, and tips up to an annual rate of pay of $100,000. Employee group health care benefits, including insurance premiums; retirement contributions; and covered leave as eligible as well.
  • Most loan fees and prepayment penalties will be waived and there is an automatic deferment of payments for 6 months.
  • Small business owners can apply through over 800 SBA-certified lenders, including banks, credit unions and other financial institutions. In most instances, business owners should apply through the bank which holds their main operating account or through which they hold a loan.
  • The application process has been evolving rapidly. We recommend that you contact your bank for the latest application developments.
  • During an 8-week period beginning on the date a PPP loan is funded, a borrower who maintains payroll for these 8 weeks will be eligible for loan forgiveness for up to  the full principal amount of the loan. The amount eligible for forgiveness is equal to the total costs incurred and payments made during the forgiveness period for (1) payroll, (2) mortgage interest, (3) rent and (4) utilities.
  • The loan forgiveness amount available to a borrower is subject to reduction if the borrower terminates employees or reduces employee salary and wages during the Forgiveness Period. There is, however, relief from the forgiveness reduction if the borrower rehires employees or makes up for wage reductions by June 30, 2020.

Economic Injury Disaster Loan (EIDL) Program Details

  • Small businesses with 500 employees or fewer
  • Sole proprietors and independent contractors
  • Most non-profits, including those with 501(c)(3) designations and fewer than 500 employees

Loan Provisions

  • Loans amounts can be up to $2 million with terms not exceeding 30 years.
  • Interest rates cannot exceed 3.75% for for-profit businesses and 2.75% for non-profit businesses.
  • Loan forgiveness is available for $10,000 used toward maintaining payroll, mortgage, or lease payments, increased costs from supply chain disruption, or repaying obligations that cannot be met due to COVID-19.

For Further Reading
SBA Coronavirus Relief Options – SBA
Comprehensive Summary of CARES Act – National Law Review
High-Level Summary for Small Business Owners – U.S. Chamber of Commerce
Podcast Discussion on SBA Loans – Wall Street Journal

Paycheck Protection Program Application and Fact Sheets – U.S. Treasury
Overview of The Paycheck Protection Program – National Law Review

Overview of The EIDL Program – National Law Review
Disaster Loan Assistance Application (EIDL Application)

The above analysis is based on information that is changing on a daily basis. Please contact your Roundview advisor to discuss how best to apply the most up-to-date recommendations to your individual financial situation.