Thanks to the COVID-19 pandemic, many small business owners face uncertainty. To compound this uncertainty, the White House announced this weekend it will extend social distancing guidelines until the end of April. Thankfully the government also recently completed the passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). With a massive $2 trillion allocated for businesses, individuals, federal agencies, and state and local governments, the CARES Act has been designed to distribute capital quickly and broadly. There are a number of provisions that impact small businesses. The regulations (and interpretations of the laws formatted as rules) are fluid, however here is a guide to what you need to know about COVID-19 and small businesses.

EMERGENCY ECONOMIC INJURY DISASTER LOANS (EIDL)

This program was already in existence through the Small Business Administration (SBA). In early March, the SBA’s disaster loan program was extended to all small businesses affected by COVID-19, but the CARES Act opens this program up further and makes it easier to apply.

Eligible Businesses
  • Businesses with 500 or fewer employees
  • The term employee includes individuals employed on a full-time, part-time or other basis
  • Tribal businesses, cooperatives, and ESOPs with fewer than 500 employees
  • Non-profit organizations
  • Individuals operating as sole proprietors or independent contractors
Details to Know
  • EIDLs can be approved by the SBA based solely on an applicant’s credit score.
  • EIDLs that are smaller than $200,000 can be approved without a personal guarantee.
  • Borrowers can receive a $10,000 emergency grant cash advance that can be forgiven if spent on paid leave, maintaining payroll; increased costs due to supply chain disruption; mortgage or lease
    payments or repaying obligations that cannot be met due to revenue losses.
  • Expands allowable use to payroll costs, costs of group health care benefits during periods of paid sick, medical or family leave and insurance premiums; employee salaries, commissions or similar compensations; interest on mortgage obligations; rent; utilities; interest on other debt obligations incurred before the covered period.
  • Coverage period January 31, 2020 through December 31, 2020
Requirements
  • Required to make good faith certification that the employer has been affected by COVID-19 and will use funds to retain workers and maintain payroll and other debt obligations
  • No requirement that applicant is unable to obtain credit elsewhere
  • Business MUST be operational on January 31, 2020
  • Must be used for:
    • Maintaining payroll to retain employees during disruption/slowdown
    • Covering increased costs due to interrupted supply chains
    • Paying rent/mortgage payments
    • Replaying obligations that cannot be met due to revenue losses
How to Apply

To apply for this loan visit the US Small Business Administration.  For everything you need to know about applying for a small business loan, see the U.S. Chamber’s Small Business Loan Guide.

PAYCHECK PROTECTION PROGRAM

The Paycheck Protection Program, one of the largest sections of the CARES Act, is the most important provision in the new stimulus bill for most small businesses. This new program sets aside $350 billion in government-backed loans. Currently, the SBA guarantees small business loans that are given out by a network of more than 800 lenders across the U.S. The Paycheck Protection Program creates a type of emergency loan that can be forgiven when used to maintain payroll and expands the network beyond SBA so that more banks, credit unions and lenders can issue those loans. The basic purpose is to incentivize small businesses to not lay off workers and to rehire laid-off workers that lost jobs due to COVID-19 disruptions.

Eligible Businesses
  • Businesses with 500 or fewer employees
  • Select types of businesses with fewer than 1,500 employees
  • The term employee includes individuals employed on a full-time, part-time or other basis
  • Tribal businesses, cooperatives, and ESOPs with fewer than 500 employees
  • 501(c)(3) non-profits with fewer than 500 workers and some 501(c) (19) veteran organizations
  • Individuals operating as self-employed, sole proprietors or independent contractors
  • Businesses, even without a personal guarantee or collateral, can get a loan as long as they were operational on February 15, 2020
Details to Know
  • IDLs can be approved by the SBA based solely on an applicant’s credit score.
  • The maximum loan amount under the Paycheck Protection Act is $10 million, with an interest rate no higher than 4%.
  • The lenders are expected to defer fees, principal and interest for no less than six months and no more than one year.
  • Generally speaking, as long as employers continue paying employees at normal levels during the eight weeks following the origination of the loan, then the amount they spent on payroll costs (excluding costs for any compensation above $100,000 annually), mortgage interest, rent payments and utility payments can be combined and that portion of the loan will be forgiven.
Requirements
  • Required to make good faith certification the employer has been affected by COVID-19
  • No requirement of application being unable to obtain credit elsewhere
  • No prepayment penalty
  • No personal guarantee or collateral is required for the loan
  • Business must maintain its March 24, 2020 employment levels through September 30, 2020 as much as practicable, and in any case shall not reduce its employment levels by more than 10%.
How to Apply

To apply visit your local bank or credit union who are conduits for the Small Business Administration (SBA) Loan process. Most firms that already participate in the Small Business Administration’s Loan program will provide a place to apply. Be forewarned, you cannot get a loan for this as of this writing. The SBA lenders have 30 days to gather the documents they feel will be necessary to facilitate the loans. Most lenders should have this information available in the next week or so.

While you wait for the loan process to be available, make good use of this time. Gather documentation supporting your payroll expenses over the last 12 months, netting out the portion of salaries in excess of $100,000 as well as other business expenses – mortgage/rent, utilities, etc. You will also want to gather your business documents – corporate articles, partnership documents, Bi-Laws, or equivalent as that will also be necessary.

CAN I RECEIVE BOTH AN EIDL AND PAYCHECK PROTECTION PROGRAM

Yes, small businesses can get both an EIDL and a Paycheck Protection Program loan as long as they don’t pay for the same expenses. However, be sure to check with your financial advisor or lender before taking both types of loans if you are not sure of the specifics of regulations related to COVID-19 and small businesses.

COVID-19 and Small Businesses

Struggling to keep up with the ever-changing regulations for COVID-19 and small businesses? Check back here frequently for up to date information or contact us for all of your divorce financial needs.