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PPP, EIDL: What Small Business Owners Need To Know About the CARES Act

Lynn Morrison  |  April 3, 2020

The CARES Act includes two provisions to help small businesses keep their workers employed and their utilities and rents paid. Here’s how to get yours.

The morning of April 3 — or maybe midnight the night before — many small business owners woke up and headed to their computers prepared to battle it out to secure a loan through the Paycheck Protection Program (PPP) that is part of the CARES (Coronavirus Aid, Relief, and Economic Security) Act.  

There was $349 billion on the line after all — and if you kept your employees, well, employed through the eight weeks after you took the loan, the money you borrowed could be forgiven. Plus, you could use it not just for salaries but for rents and utilities in the offices you weren’t using. It was worth delaying sleep — or setting an early alarm.

And then … crickets. 

The cry heard throughout the land from big banks, credit unions, small banks and non-bank lenders was fairly consistent: We’re not ready! The government hadn’t provided them with the information they needed in enough time to fire up the engines. (It took a few hours, but banks have started accepting applications. So keep reloading that page!) 

There will be money to be had via PPP — up to 2.5 times your average monthly payroll for 2019 with a cap of $10 million (most small businesses will qualify for far less).  There are also Emergency EIDL Grants of up to $10,000 available. 

Here’s what you need to know — and do — to get yours.  

Who’s eligible?  

Companies that employ fewer than 500 people.  Importantly, self-employed individuals, solo practitioners and independent contractors who typically receive 1099s can also apply.  

How does the Paycheck Protection Program (PPP) work?

The Paycheck Protection Program (PPP) is designed to keep workers employed, even if businesses are forced to close temporarily. Small businesses can apply for a two-year, 0.5% interest loan through the program, to cover payroll and other limited running costs. The U.S. government is acting as the guarantor for the loan, and lending institutions cannot charge any fees. 

As an additional aid, the government will forgive the PPP Loans as long as receiving businesses use them primarily to keep their existing workforce employed. If you reduce your headcount or cut wages, the government will not fully forgive the loan.  

Scott Levine, CPA with Intown Financial Services in Atlanta, explains, “With this loan you can apply for 2.5 times your average [monthly] payroll costs and you can use it to pay employees, contractors, some interest, and some other limited operating expenses. Later in the year you can apply for forgiveness of what you borrowed. You’ll be asked to substantiate how you spent the money but in theory, if you spent it on those listed items, the loan will be forgiven. The loan amount will be 2.5 times your average monthly payroll costs, capped at $10 million.”  

For these purposes, payroll is defined as salaries, wages and commissions of up to $100,000 per employee. It also includes cash tips, vacation, medical, family or sick leave, group health insurance benefits (including premiums), retirement benefits, severance benefits, and state and local employee taxes.

What is the Economic Injury Disaster Loan (EIDL) program?

The Economic Injury Disaster Loan program (EIDL) is a pre-existing program that got an extra $10 billion in the CARES Act. EIDLs of up to $200,000 can be made based on the credit score of the applicant without any personal guarantee. 

There is also the option of a forgivable grant of up to $10,000 when applying for an EIDL. Within three days of applying, you will receive up to $10,000 to help offset unexpected losses and any increased costs your business is suffering due to Covid-19, even if you are later refused an EIDL. 

You must use the money to pay for employer costs such as increased paid sick leave or salaries, making rent or mortgage payments or offsetting increased supply chain costs or other repayment obligations. (But note: Although you can apply for both the PPP and an EIDL you can’t use the money for the same purposes.  So if you use the PPP for payroll, you have to use the EIDL funds for other things.) 

How do I apply for PPP and EIDL?

You can only apply for the grants and the loan through existing SBA 7(a) lenders or through any federally insured depository institution, federally insured credit union, or Farm Credit System institution that is participating. 

Act as quickly as you can. Funding is not unlimited. Both the grants and the loans will be approved on a first come, first served basis. Due to the high amount of expected applications, many banks and lenders are prioritizing their existing customers. You should contact your bank or lender to assess their status if they have not already been in touch with you.

Should you receive a grant or a loan, you must carefully track how and when you spend the money.  Levine advises, “Everyone who can qualify should apply but just be VERY careful how the money is spent and what documentation you keep so you can get the forgiveness.” The Small Business Administration is very clear on the rules. On its website it states: “The [PPP] loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll).”

Start here

You can find full information on the EIDL small business and disaster loans on the Small Business Administration’s website. The administration allows you to complete a Disaster Loan Assistance application, where it advises it may take up to 2 hours to complete. You can apply for the emergency grant through any SBA-approved lender.

The Small Business Administration offers information on the PPP loans along with a sample application form on their website. Again, you must apply through an approved SBA lender, but you can do your prep work now. 

If you need assistance, get in touch with one of the SBA regional or local offices or one of their partners.

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