Coronavirus Aid, Relief, and Economic Security Act (CARES Act) – Overview
The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) provides emergency assistance to individuals, families and businesses affected by the COVID-19 pandemic. While this massive economic stimulus package has many provisions and programs to help small businesses mitigate the potentially devastating economic impact of the COVID crisis, some of these relief options deserve special attention.
CARES provided the Small Business Administration the funding and authority to expand its existing loan programs, specifically the Economic Injury Disaster Loan (EIDL) program, and to establish the new Paycheck Protection Program (PPP). For an in-depth summary of the PPP, please see the related article on this webpage titled “Overview of the Paycheck Protection Program,” available here.
ECONOMIC INJURY DISASTER LOAN (EIDL)
Economic Injury Disaster Loans are administered through the Small Business Association’s existing 7(a) loan program. CARES expands eligibility to this preexisting program, offering more affected businesses access to allocated funds. EIDLs are targeted, low interest loans to small businesses and certain non-profit organizations that have been severely impacted by the COVID-19 outbreak. While these loans are not forgivable, like the loans obtained through PPP, they offer access to quick capital on excellent terms. Applications may be submitted through: https://www.sba.gov/page/disaster-loan-applications.
Features of the EIDL include:
- Provides eligible small businesses (<500 employees) with working capital loans of up to $2 million to help overcome temporary loss of revenue
- Loans may be used to pay fixed debts, payroll, accounts payable, or other operating costs that cannot be paid due to COVID related loss of revenue
- EIDL funds cannot be used for payroll costs that are covered by a PPP loan
- Interest rate of 3.75% (2.75% for non-profits) amortized up to 30 years
- Eligible businesses must qualify as small businesses in accordance with the SBA’s existing size standards, with a few exceptions
- Loans also are available to 501(c)(3) non-profit organizations
- Loans may include an Emergency Economic Injury Grant of up to $10,000 (see below)
- Loans may be unsecured up to $25,000. Collateral required on greater amounts if available. No personal guarantee required on loans up to $200,000
- Sole proprietorships, independent contractors, and start-ups are eligible as long as they were doing business as of Jan 31, 2020
- Certain affiliation rules that usually apply to EIDL are waived
- Business will be required to show substantial economic injury due to COVID-19 (g. disruptions in supply chain, inability to provide services, staffing or technology issues, closure).
- Loans may be made on the basis of a credit score, without production of tax returns
EMERGENCY ECONOMIC INJURY GRANTS
- For those that apply for the EIDL, an advance of $1,000 per employee, up to a maximum of $10,000, may be advanced within 2-3 days of submitting the EIDL application. This advance does not need to be repaid, even if the loan application is denied.
- However, if an applicant also is approved for the PPP loan, the Emergency Economic Injury Grant advance will be reduced from the PPP loan forgiveness amount.
- The Emergency Grant may be used for any purpose permitted for EIDL, including payment of sick leave, maintaining payroll, meeting increased costs to obtain materials, rent or mortgage interest obligations, or repaying other obligations that cannot be met due to COVID-19.
SMALL BUSINESS DEBT RELIEF
Under the Small Business Debt Relief program, the SBA will provide immediate relief to small businesses with existing non-PPP 7(a) loans, 504 loans, and microloans. The SBA will cover all loan payments on these loans, including principal, interest and fees, for six months. This relief also will be available to new small business borrowers who take out eligible loans no later than September 27, 2020. For more information about 7(a), 504 and microloans, click here for Small Business Owner’s Guide to the CARES Act.
EXPRESS BRIDGE LOAN OF UP TO $25,000
If you have an existing relationship with an SBA lender, you may be able to access up to $25,000 as a bridge to be used while waiting on approval of an EIDL. This bridge loan is repaid through proceeds from the EIDL. Contact the SBA lender through whom you submit your EIDL application for additional details.
OTHER RELIEF AVAILABLE
CARES also provides additional financial relief through payroll tax deferments, employee retention credits, liberalization of net operating loss deductions, and more. Consult with your tax advisor regarding these and other measures that may be available under the CARES Act to help your business mitigate the adverse financial impact of the COVID-19 crisis.