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The CARES Act – What You Need to Know about Relief Now Available for Businesses

With the passage of the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, businesses received a dose of much-needed relief in the form of tax payment deferrals and loan programs. In this post, we’ll take a look at both the previously established EIDL Program and the Paycheck Protection Program.

Paycheck Protection Program

The Paycheck Protection Program (PPP) expansion of Section 7 (a) of the Small Business Act (formerly known as “Small Business Interruption Loan Program”) includes qualifying businesses, independent contractors, sole proprietors, non-profits, veteran’s organizations, religious organizations, or Tribal businesses that have fewer than 500 employees or meet the SBA’s size requirements under the industry-based North American Industry Classification System (NAICS). Hospitality and restaurant businesses and others (independently-owned franchises approved by the SBA, for instance) are exempt from some of these requirements and instead meet location-based requirements.

Loans are available through lenders that administer Section 7(a) loans and are available for 250 percent of average monthly payroll costs, up to $10 million. This amount is for the purpose of covering up to eight weeks of payroll expenses. This loan is calculated on the average monthly payroll costs incurred during the year prior to the loan date, except for seasonal businesses, which may choose to measure expenses for a 12-week period starting at the employer’s choice of February 15 or March 1, 2019 and ending June 30, 2019.

While the loan terms are applied on a case-by-case basis, the loans have a maximum term of ten years, interest rate capped 4% per annum, and there are no prepayment penalties. The loans are also limited to use for payroll costs, continuation of group healthcare benefits during periods of sick leave, employee salaries and other compensations, payments of mortgage interest, rent payments, interest on other debt, and utility payments; and expenditures for payroll and compensation, rent payments, utility payments, and payments of mortgage interest are forgivable for the eight week period following the issuance of the loan.  No personal or collateral guarantee will be required, and the recipient is not required to certify that it is otherwise unable to obtain credit.

Most notably, payments will be deferred for at least six months, and the loan is eligible for forgiveness to the extent that the proceeds have been used for certain qualifying expenses in amounts up to 100%. 

EIDL Program

The Economic Injury Disaster Loan Program (EIDL) under Section 7 (b)(2) of the Small Business Act has been expanded, allowing more businesses to obtain EIDL loans. Generally, the applicant pool for these faces similar criteria as the Section 7(a) loans listed above. Eligibility for these loans will be based upon the applicant’s ability to pay the loan (such as a credit score), but the usual requirements that the business be in operation for at least a year prior to the disaster or that the business is otherwise ineligible for credit have been waived.

Businesses that self-certify that they are eligible may request an emergency grant in amounts up to $10,000 that will be distributed within three days. The advance amount is a grant and not a loan, and thus repayment is not required, even if the applicant is subsequently denied for an EIDL loan. Businesses that request loans of up to $200,000 are not required to give a personal guarantee on the loan.

The terms of the loans can be up to 30 years and up to 3.75% interest per annum (2.75% for non-profits). Proceeds of these loans may be used to pay payroll expenses, accounts payable, pay fixed debts and to pay other bills that can’t be paid because of issues related to COVID-19, but the funds may NOT be used to refinance prior indebtedness, pay penalties for failure to comply with laws/regulations/ orders (taxes, etc.), repair any physical damage, or pay dividends or disbursements to owners (except as reasonable compensation directly related to their performance of services for the business).

The Interplay between PPP and EIDL

Applicants cannot use funds from both programs to cover the same expenses. For instance, employers may not pay payroll expenses out of both PPP funds and EIDL funds. EIDL loans may, however, be refinanced by a PPP loan.

How Do I Apply?

Contact us – we’ll help you get through the application process for both.

AT Morgan

Anne-Tyler Morgan is a Member of McBrayer law.  Her law practice primarily focuses on politics, elections, and campaign finance, nonprofit institutions and associations, foster care and adoption, administrative law, healthcare law, pharmacy law and transactional healthcare and transactional agreements. Ms. Morgan can be reached at atmorgan@mcbrayerfirm.com or (859) 231-8780, ext. 1207. 

Services may be performed by others.

This article does not constitute legal advice.

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