Summary of CARES Act Relief Provisions and Application Process
April 01, 2020
On Friday, March 27, 2020, President Donald J. Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). One key aspect of the Act is the relief it will provide to small businesses, most notably through the Paycheck Protection Program (“PPP”).
What is the Paycheck Protection Program?
The PPP provides $349 billion for the Small Business Administration (“SBA”) to fully guarantee loans to small businesses through its 7(a) program.
What Do the Loans Cover?
Loans provided pursuant to the PPP may be used for: payroll; benefits; lease and mortgage obligations; utilities; and interest on existing debt obligations. The size of the loans can equal up to 250% of an employer’s average monthly payroll, with a maximum loan of $10 million. Congress capped interest rates on such loans at 4%, and the Treasury Department has provided for a .5% fixed rate.
Can the Loans Be Forgiven?
Loans can be forgiven up to the aggregate amount of payroll, mortgage interest, rent, and utility payments made during the eight-week period following loan origination, assuming the amount does not exceed the original principal. The amount forgiven is lowered by reductions in full-time employment and in situations where salaries and wages fall by more than 25% from the applicable prior period; however, this can be mitigated by rehiring employees.
Who May Apply?
Businesses and nonprofits with fewer than 500 employees are generally eligible to apply. Sole proprietors, independent contractors, and self-employed individuals are also eligible, and should be prepared to submit payroll tax filings, Forms 1099-MISC, and income and expenses. Borrowers will need to have been in business as of February 15, 2020, and paid employee salaries and payroll taxes or independent contractors.
How to Apply
On March 31, 2020, the SBA released a sample application and accompanying instructions on its website. These documents are attached for reference. SBA lenders will begin accepting applications from small businesses and sole proprietors on April 3, 2020. According to the Washington Post, “loans are expected to be handled on a first-come-first-serve basis,” and the Treasury Department is “encourage[ing] [applicants] to apply as quickly as [they] can because there is a funding cap and lenders need time to process [the] loan.”
More information on the PPP and where to apply can be found here or at https://www.sba.gov/funding-programs/loans/paycheck-protection-program-ppp.
What Other Funds Are Available?
In addition to the Paycheck Protection Program, the SBA continues to provide Economic Injury Disaster Loans (“EIDLs”), and has expanded access to such loans to businesses and nonprofits with fewer than 500 employees.
The CARES Act also establishes new Emergency EIDL Grants. Emergency EIDL Grants are a $10,000 loan advance available to EIDL applicants. These advances will not have to be repaid even if the EIDL application is subsequently denied. Emergency EIDL Grants may be used for: “providing sick leave to employees unable to work due to the direct effect of the COVID-19”; “maintaining payroll to retain employees during business disruptions or substantial slowdowns”; “meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains”; “making rent or mortgage payments”; and “repaying obligations that cannot be met due to loss revenues.”
Businesses may apply for both PPP Loans and EIDLs, so long as the funds are not used for the same purpose. Emergency EIDL Grants will be deducted from the amount forgiven under the PPP.
Applicants may apply for EIDLs online at https://covid19relief.sba.gov/.
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