First and foremost, before I get into anything else today: if you have not already done so, and assuming you are reading this because you are a business owner, complete your application to get your $10,000 Economic Injury Disaster GRANT Money, now. Here's the link, and I share more details about it below: https://covid19relief.sba.gov/
Okay, now that I've emphasized how important that is, let's take a step back and look at the big picture of Covid-19 stimulus money, and what else you may have access to now.
On March 27, the President signed a $2.2 trillion stimulus bill into law that will hopefully provide some relief for many individuals and businesses. The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) sends money directly to Americans, expands unemployment coverage, and makes a number of other changes. Many of those changes are set up to directly serve small business owners and their staff, and $350 billion has been set aside specifically for those purposes. Please note: $350 billion is going to go fast, so get your applications in early for everything you qualify to receive.
There is a grant (referenced above), and two types of loans in particular that can help keep you in business during the COVID-19 crisis, and it's all rumored to have relatively fast turnaround and payment deferrals. We'll see what's true over the coming weeks.
The first is the Small Business Administration's (SBA) Economic Injury Disaster Loan (EIDL), which now has some provisions in place directly related to the pandemic. Please note: if you got in early and applied prior to March 30th, I've heard rumors that you should reapply. You want an application number that is after 2000. As of this writing, application numbers were starting with 3301.
The EIDL begins with a short application, and if you check the box for the “advance” in the application, we are hearing that you will get $10,000 as a grant within 3 days of your loan officer being assigned. After that, your application will go through a loan underwriting process based on your credit score and you will get to keep the grant, even if you do not get the loan. So, yes, if your credit score is poor, apply anyway.
The other loan fund that has been created specifically by the CARES Act is called the Paycheck Protection Program (PPP). The PPP applications are due to come out today, April 3, but many banks are scrambling to figure out how to actually handle underwriting for the PPP, and you must apply through your bank. Here's where you can read about the PPP. But contact your local bank for the application.
It might seem like double dipping, but you can indeed get access to both of these loans, and use them for different types of expenses associated with your business, which I'll explain in more detail below. Please note that there are still elements of these loans that are not fully understood, and we are giving our best legal interpretation based on information from the Small Business Administration and the US Chamber of Commerce.
Economic Injury Disaster Loans (Above and Beyond the $10,000 Grant)
Every state has been declared a disaster area due to COVID-19, and therefore your business may be eligible for an SBA economic injury disaster loan. This is a low-interest loan that has terms that can last as long as 30 years, and can provide you with capital loans of up to $2 million and an advance of up to $10,000 (the grant referenced above). It works very similarly to the SBA's 7(a) loan, which you may have heard of before.
Economic Injury Disaster Loans (EIDL) can be used to cover:
- Paid sick leave to employees unable to work due to the direct effects of COVID-19,
- Rent or mortgage payments,
- Maintaining payroll (to help prevent layoffs and pay cuts),
- Increased costs due to supply chain disruption,
- Payment obligations that could not be met due to revenue loss.
Whereas the application used to take hours, it now only takes about 10 minutes to fill out. A couple of important notes, however:
- SBA loan reps have said that they are focusing on processing applications filed after March 30th, so if you have a confirmation number starting with 2000, you should probably reapply.
- Be sure to check the box toward the end of the application if you want to be considered for an advance up to $10,000 (as I mentioned at the top of the article, this amount does not need to be repaid and so is essentially a grant!).
You can apply for disaster loan assistance here: https://covid19relief.sba.gov/
Coronavirus Emergency Paycheck Protection Loan
The CARES Act's $350 billion allocation to small businesses is specifically called the Paycheck Protection Program (PPP). It specifically incentivizes borrowers who maintain their payrolls, i.e., don't lay off their employees. This program will fully forgive loans where at least 75% of the forgiven amount is used to pay employees for the eight weeks following the loan. If you lay off employees or cut salaries and wages, your loan forgiveness will be reduced.
PPP loans can be used to cover:
- Payroll costs,
- Group health care benefits during periods of paid, sick, medical, or family leave, and insurance premiums;
- Interest on a mortgage obligation,
- Rent, under lease agreements in force before February 15, 2020,
- Utilities, for which service began before February 15, 2020,
- Interest on any debt incurred before February 15, 2020.
Small businesses with less than 500 employees (including sole proprietorships, independent contractors, and those who are self employed) are eligible. You can apply through SBA 7(a) lenders, federally insured credit unions, or participating Farm Credit Systems (meaning your bank). Other lenders might be on the scene soon as well, but a lot of them are currently being reviewed for approval to the program.
Full details are available here: https://www.sba.gov/funding-programs/loans/paycheck-protection-program-ppp
You can also see find a Paycheck Protection Application here, and be prepared when applications open on April 3rd to apply through your local bank: https://www.sba.gov/sites/default/files/2020-03/Borrower%20Paycheck%20Protection%20Program%20Application_0.pdf.
You should have the following information on hand to fill out either of the two loan applications:
- IRS Form 4506T—Tax Information Authorization—completed and signed by each principal or owner,
- Recent federal income tax returns,
- SBA Form 413—Personal Financial Statement,
- SBA Form 2202—Schedule of Liabilities listing all fixed debts,
- Any profit and loss statements, recent tax returns, and balance sheets.
If you need help reviewing your options, as your Creative Business Lawyer®, we would be happy to assist you. Sooner is better than later, however, as there is a finite amount of funding for the CARES Act and a finite amount of our time. If you are considering alternatives such as expanded unemployment benefits and private loan financing, we can help you decide what's best for your small business.
This article is a service of Naja I. Hawk, The Phresh Esq.--- Creative Business Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Business Bag Breakthrough Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us at 404-439-9310 today to schedule.