On March 27, the federal government passed economic stimulus legislation commonly known as the CARES Act.
The most popular aspect of the CARES Act has been the imminent payment of more than $1,000 each to most Americans. The legislation also supplements state unemployment compensation for unemployed people.
For small businesses, the federal government instituted two programs that are administered through the federal government’s Small Business Administration. The SBA typically loans small amounts of money to entrepreneurs and small business owners and also traditionally guarantees many “riskier” loans that banks enter into to finance entrepreneurs and small business owners.
The CARES Act introduced two, new programs that use the SBA to get financial resources into the hands of small businesses. Due to the rapidity of the CARES Act’s implementation, details in rules and administration are being released almost hourly.
The first program modifies the SBA’s existing Economic Injury Disaster Loan Program. The EIDLP has traditionally facilitated loans (currently, up to 30 years in duration) on very favorable terms (currently, 3.75% fixed interest) to businesses located in disaster areas.
The CARES Act added a $10,000 grant through EIDLP. Even if a small business may not qualify for the traditional loan itself, the business may qualify for the $10,000 grant, which does not have to be repaid.
The EIDLP application for the new grant amount can be made online through the SBA’s website and typically takes no longer than 15 minutes to complete.
The second, new, small business program under the CARES Act is the Paycheck Protection Program. The PPP also provides loans to small business owners. The PPP loan can be for any amount up to the total sum of two months of the business’s payroll (calculated through a rolling average process from the last year) plus 25%. The loan amount is to be repaid in two years with interest calculated at 1% per year, with no prohibition on prepayment.
However, if the business satisfies several requirements, the loan is converted into a grant that does not have to be repaid by the business at all. To avoid repaying the loan, among several other requirements, the business must return by June 30 to the approximate payroll the business had on Feb. 15. The business must also have used at least 75% of the PPP loan amount toward payroll expenses in the first two months after the loan is funded. Additionally, all of the PPP loan amount must be used in the business’s operations (what is not used for payroll can be used for rent, mortgage interest, insurance premiums and utility payments) within the first two months after the loan is funded.
PPP applications are made through local banks that are licensed through the SBA. Participating SBA lenders are identified on SBA’s website and include many local banks.
There are multiple limitations that preclude business owners from “double dipping” if one owner owns more than one entity, and any one business cannot “double up” benefits under both the EIDLP and the PPP.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.