There are two SBA (Small Business Association) loans made available under the Act to small businesses (less than 500 employees) that were operational as of 2/15/2020:
- The Paycheck Protection Program (PPP)
- These loans are in the amount of up to 2.5 months of payroll cost (excluding costs for salaries over $100k per employee) and are capped at $10 million. The interest rate is 1%. Initial loan fees are waived, and all interest and principal payments may be deferred by 6 months. The loan term is 2 years. No collateral and no personal guaranty are required. These loans are available until 6/30/2020.
- Borrowers can apply for loan forgiveness for a period of 8 weeks after the loan is issued, and the full amount of the loan may be forgiven if applicable. The amount that is forgiven is calculated as equaling cumulative payroll costs, rent, utilities, and interest paid on mortgages (this includes interest paid on rented personal property as well). However, non-payroll costs cannot constitute more than 25% of the loan forgiveness amount. The amount of loan forgiveness is reduced using specific calculations if the number of employees and/or amount of cumulative salaries paid to employees is reduced relative to 2019 or 12-month-prior averages (whichever period is more beneficial may be used). However, if employees are rehired before 6/30/2020, this reduction is not be applied.
- Applications are being accepted 4/3/2020 through 6/30/2020. Benefits are first come first serve so applying as early as possible is advised, although there are discussions of additional funding being added to the program to help more businesses if there is a need.
- Some of the information confirmed above was included in a new ruling issued on PPP loans only a week after the initial CARES Act was signed into law. The SBA may continue to provide further guidance if needed on PPP loans through their website sba.gov.
- The Economic Injury Disaster Loan (EIDL) Program
- This program provides emergency loans up to $2 million, and the amount is based on economic injury suffered and financial need due to the pandemic as determined by the SBA. The interest rate is 3.75% for business and 2.75% for nonprofits, with a maximum loan term of 30 years. There is no requirement for personal guarantees on loans under $200,000 and no requirement that the borrower cannot obtain credit elsewhere. Initial loan fees are waived, and principal and interest payments may be deferred for all of 2020. These loans are available until 12/31/2020.
- The program also allows for emergency grants to be issued by the SBA up to $10,000 to EIDL applicants who they determine need immediate funds. Applicants do not need to repay these grants. Grants are received within 3 days of the application, and if the loan application is later denied, recipients are not required to pay back the grant amount.
- Unlike the PPP loan, there is no forgiveness provision for any portion of the EIDL loan amount. Another key difference is that the amount of the loan is not based on payroll cost, but overall financial need of the business to keep it operational.
Businesses are eligible to receive benefits from both the PPP and EIDL programs in conjunction with no impact to each other if the loans are not used towards the same expenses. On the other hand, if EIDL loans made between January 31, 2020 and April 3, 2020 were used for the same costs (e.g. payroll costs), the EIDL loan must be refinanced into the PPP loan.
In addition to the above loan programs, the CARES Act also provides a Payroll Credit & Deferral Program, which provides tax incentives for qualifying businesses to retain employees. It’s important to note that if a small business receives a PPP loan, the deferral program may not be taken. If a small business receives a PPP loan and that loan is forgiven, then both the tax credit and the deferral program may not be taken.
- The tax credit allows qualifying employers impacted by the pandemic to receive a payroll tax credit in the amount of 50% of wages paid from 3/13/2020 to 12/31/2020, with a cap at $10,000 of wages per employee (up to $5,000 per employee). This calculated amount offsets payroll taxes owed for 2020. If the credit ends up equaling more than the 2020 payroll tax liability, a refundable credit will be received.
- The deferral program allows employers and self-employed individuals to defer the employer-paid share of payroll taxes owed on wages paid for the tax year ending 12/31/2020. This tax must be paid in equal installments by 12/31/2021 and 12/31/2022.
Note that the tax credit and deferrals are available to qualifying businesses regardless of size, while the PPP and EIDL loans are only available to qualifying small businesses.
Mid-sized and large businesses as well as public companies are also receiving substantial federal stimulus if they meet certain requirements, for example specific sectors such as airlines and national security businesses, but these provisions are outside the scope of this article. There are also extensive provisions surrounding healthcare research, funding, and support to hospitals that are not included in the scope of this article.