These are extraordinary times. With most of us under orders to stay at home, only essential workers and those able to work from home likely have income. The remainder of the workforce has filed for unemployment insurance benefits in droves. The major national corporations are receiving substantial direct subsidies to stay afloat. But what about help for sole proprietors, independent contractors, and other small businesses?
On Friday, March 27, 2020, the Coronavirus, Aid, Relief and Economic Security Act (the “CARES Act”) became law. The CARES Act contains $376 billion in relief for American workers and small businesses. Here’s what you need to know.
Emergency Economic Injury Disaster Loans (EEIDL) and $10,000 Grants
The CARES Act charges the Small Business Administration (SBA) to offer a direct loan product to eligible businesses in designated disaster areas, which now includes all 50 states due to COVID-19. The COVID-19 streamlined application can be found and completed on the SBA website.
From January 1, 2020, through December 31, 2020, applicants can receive a prompt advance of up to $10,000 that does not need to be repaid, even if the application for an EEIDL is ultimately denied. If the applicant also received a PPP loan, the EEIDL advance is deducted from the loan forgiveness amount of the PPP loan.
Am I Eligible for an EEIDL Loan or Grant?
To be eligible for an EEIDL loan or grant, your business must have 500 employees or less. Sole proprietorships, self-employed individuals, and private nonprofit organizations are eligible. You must have been in operation on January 31, 2020.
The maximum EEIDL is $2 million. The maximum term of 30 years. The interest rate for small businesses is 3.75%, and for nonprofits, 2.75%. No personal guarantee is required.
What Are the Allowable Uses of an EEIDL Loan or Grant?
Allowable uses are set forth in Section 7(b)(2) of the Small Business Administration Act and include:
- providing paid sick leave to employees who are unable to work,
- maintaining payroll to retain employees,
- meeting any increase in costs to obtain materials,
- making rent or mortgage payments, and
- repaying other debt obligations.
Forgivable Small Business Loans Through the PPP
The CARES Act initiated the Paycheck Protection Program (PPP), which is being administered through the SBA. The SBA has modified existing loan programs to allow for the relaxation of the SBA’s criteria for loan eligibility.
Who is Eligible for a PPP Loan?
Your business is eligible for a PPP loan if:
- You have 500 or fewer employees, and your principal place of business is in the U.S.;
- You are a 501(c)(3) tax-exempt nonprofit organization;
- You are a 501(c)(19) tax-exempt veterans’ organization;
- You are a Tribal business under section 31(b)(2)(C) of the Small Business Act.
Your business must have been operating on February 15, 2020, and have had either employees or independent contractors working for you. Sole proprietorship and independent contractors or otherwise self-employed workers who were working on February 15, 2020, are also eligible for PPP loans.
How Much Can I Borrow Through the PPP?
The CARES Act provides that PPP loans may be granted for $10 million or 2.5 times monthly payroll, whichever is less. If your business has an outstanding Economic Injury Disaster Loan (EIDL) that was made between January 31, 2020 and April 3, 2020, that amount will be added.
The interest rate is set at 1%, no payments need be made for six months, and the term is two (2) years. However, the loan can be wholly forgiven if it is used to pay payroll, payroll costs, mortgage interest, rent, and utilities. At least 75% of the loan must be used for payroll and payroll costs.
How Do I Apply for a PPP Loan?
To apply, you must first visit the SBA website for an application and then identify a lender that is participating in the PPP. You will submit documentation such as payroll records or bank statements to prove eligibility.
You can apply for and receive a PPP loan from now through June 30, 2020, and funds are not unlimited. If you think you are eligible and need such a loan, visit the SBA’s website and get started.
Relief from Other SBA Loans
The SBA will pay the principal and interest on other section 7(a) loans (excluding PPP loans) originating between March 27, 2020, and September 26, 2020, for six months.
These loans may be used for general working capital. The maximum amount you can borrow is $1 million. You can find a list of SBA-licensed lenders on the SBA website.
Other Stimulus Measures for Small Businesses
The CARES Act also provides the following:
Employers can defer payment of the 2020 6.2% Social Security tax obligation to 2021 and 2022.
Employers will receive a tax credit of up to $5,000 per employee for retaining employees.
Employers providing 80 hours of paid sick leave and child care leave will receive a tax credit.
Small businesses should take advantage of one or more of these loan programs and CARE Act provisions to retain employees and stay afloat during the next few challenging months.
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