The CARES Act—Small Business Financial Assistance During the COVID-19 Pandemic

On March 26, 2020, the Senate passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) — a significant piece of legislation that seeks to provide approximately $2 trillion worth of economic assistance to consumers and businesses. On March 27, 2020, the CARES Act was passed in the House of Representatives and was quickly signed into law by the President.

Title I of the CARES Act is separately titled the Keep American Workers Paid and Employed Act (the “Act”). As a part of the new legislation, the Small Business Administration (SBA) has created programs and initiatives in which small businesses, non-profits, self-employed individuals and gig economy individuals are eligible to participate.

Xander Law Group is available to assist our business clients who have been affected by the COVID-19 pandemic with identifying and analyzing sources of financial assistance or relief that may be available to them to sustain their business through the crisis. If you have any questions or need guidance through the SBA loan application process, contact Xander Law Group today.

Perhaps the most significant provision of the CARES Act is a nearly $350 billion loan program called the Paycheck Protection Program. This program is available to businesses with 500 or fewer employees to help with payroll, rent, utilities, healthcare costs and more. The SBA has also expanded a number of their existing programs and benefits, including the Small Business Debt Relief Program, Economic Injury Disaster Loans, and Emergency Economic Injury Grants.

Paycheck Protection Program (PPP)

The Paycheck Protection Program provides cash-flow assistance to employers who maintain their payroll during the COVID-19 outbreak through 100% federally guaranteed loans. If employers in the program maintain their payroll and help workers remain employed during the crisis, they will enjoy forgiveness of up to 8 weeks of payroll based on employee retention and salary levels, no SBA fees, and 6 to 12 months of deferrals. Loans are available through June 30, 2020 and provide coverage retroactively to February 15, 2020. Eligible entities will be able to apply if they were harmed by the COVID-19 pandemic between February 15, 2020 and June 30, 2020.

Frequently Asked Questions

What types of businesses and entities are eligible for a PPP loan?

• Any business with fewer than 500 employees, or the applicable size as provided by SBA industry standards, including 501(c)(3) nonprofit organizations, 501(c)(19) veterans organizations, or tribal businesses that have fewer than 500 employees.
• Individuals who operate sole proprietorships, independent contractors, and eligible self-employed individuals.
• Entities must have been in operation on February 15, 2020.

How much can a business borrow through a PPP loan?

• Eligible entities are able to borrow up to $10 million.
• Each eligible entity’s maximum loan is equal to 250 percent of its average monthly payroll costs during a time period determined by its operating history.

What are allowable uses of PPP loan proceeds?

• Payroll costs (salary, wage, commission, or similar compensation, payment of cash tip or equivalent)
• Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
• Payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation)
• Rent (including rent under a lease agreement)
• Utilities
• Interest on any other debt obligations that were incurred before the covered period

Can an entity get multiple PPP loans?

• Each eligible entity is limited to one PPP loan. Each loan will be registered under an entity’s Employer Identification Number (EIN) or Federal Taxpayer Identification Number (TIN) with the SBA to prevent multiple loans to the same entity.

Will PPP loans be forgiven?

• Entities that receive PPP loans must apply through their lender for forgiveness on their loan.
• Certain amounts of loan proceeds used in accordance with the program’s guidelines for use will be forgiven.
• Forgiveness on a covered loan is equal to the sum of payroll costs plus any payment of interest on any covered mortgage obligation (not including any prepayment or payment of principal on a covered mortgage obligation) plus any payment on any covered rent obligation plus and any covered utility payment incurred during the period between February 15, 2020 and June 30, 2020 compared to the previous year or relevant time period, proportionate to maintaining employees and wages (excluding compensation over $100,000)
• Any loan amounts not forgiven are carried forward as an ongoing loan.

What are the Interest Rate, Fees and Repayment Terms for PPP Loans?

• For any amounts not forgiven, the maximum term is 10 years, the maximum interest rate is 4%, no loan fees, no prepayment fee
• The SBA will establish application fees limits for lenders.

Economic Injury Disaster Loans & Emergency Economic Injury Grants

Emergency Economic Injury Grants provide an emergency advance of up to $10,000 to small businesses and private non-profits harmed by COVID-19 within three days of applying for an SBA’s Economic Injury Disaster Loan (“EIDL”). To request an Emergency Economic Injury Grant, you first apply for an EIDL. The CARES Act expands eligibility to access EIDL’s for entities suffering economic harm due to COVID 19, while giving the SBA more flexibility to process and disperse small dollar loans. If applicant who receives an Emergency Grant is not subsequently approved for the EIDL loan it does not have to pay back the Emergency Grant. The Emergency Economic Injury Grant does not need to be repaid under any circumstance, and may be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments.

Frequently Asked Questions

What types of businesses and entities are eligible for an Economic Injury Disaster Loan (EIDL) and Emergency Economic Injury Grant related to COVID-19?

• Businesses with fewer than 500 employees, or the applicable size as provided by SBA industry standards, including 501(c)(3) nonprofit organizations, 501(c)(19) veterans organizations, or tribal businesses that have fewer than 500 employees.
• Individuals who operate sole proprietorships, independent contractors, cooperatives, employee-owned businesses, and eligible self-employed individuals that have fewer than 500 employees.

How much can a business borrow through an EIDL loan?

• EIDLs are lower interest loans of up to $2 million, with principal and interest deferment at the loan administrator’s discretion, that are available to pay for expenses that otherwise could have been met had the disaster not occurred, including payroll and other operating expenses.

Which Businesses and entities are eligible to receive an Emergency Economic Injury Grant?

• Those eligible for an EIDL and who have been in operation since January 31, 2020.

Small Business Debt Relief Program

The Small Business Debt Relief Program will provide immediate relief to small businesses with non-disaster SBA loans, in particular 7(a), 504, and microloans. Under it, SBA will cover all loan payments on these SBA loans, including principal, interest, and fees, for 6 months. This relief will also be available to new borrowers who take out loans within six months of the President signing the bill into law

Frequently Asked questions

Which SBA loans are eligible for debt relief under the Small Business Debt Relief Program?

• 7(a) loans
  • 7(a) loans are an affordable loan product of up to $5 million for borrowers who lack credit elsewhere and need access to versatile financing, providing short-term or long-term working capital and to purchase an existing business, refinance current business debt, or purchase furniture, fixtures and supplies
• 504 loans
  • The 504 Loan Program provides loans of up to $5.5 million to approved small businesses with long-term, fixed-rate financing used to acquire fixed assets for expansion or modernization
• Microloans
  • The Microloan Program provides loans up to $50,000 to help small businesses and certain non-profit childcare centers to start up and expand.

How do PPP loans work with EIDL loans, Emergency Economic Injury Grants and the Small Business Debt Relief Program?

• Borrowers may apply for PPP loans and other SBA financial assistance, including Economic Injury Disaster Loans (EIDLs), Emergency Economic Injury Grants, 7(a) loans, 504 loans, and microloans, and also receive investment capital from Small Business Investment Corporations (SBICs). However, you cannot use your PPP loan for the same purpose as your other SBA loan(s).

Additional Debt Relief for Small Businesses in the CARES Act and Beyond

• The CARES Act provides an additional $17 Billion for the SBA to pay the principal, interest and fees on all new and existing SBA loan products for 6 months including 7(a), Community Advantage, 504 and Microloan programs.
• The CARES Act also increases the government guarantee of 7(a) loans to 100% through December 31, 2020, at which point guarantee percentages will return to 75% for loans exceeding $150,000 and 85% for loans equal to or less than $150,000.
• The CARES Act increases the maximum loan for an SBA Express loan from $350,000 to $1 million through December 31, 2020, after which time the Express loan will have a maximum of $500,000. Express loans provide businesses with revolving lines of credit for working capital purposes.
• The Florida Small Business Emergency Bridge Loan Program is currently available to small business owners located in all Florida counties statewide that experienced economic damage as a result of COVID-19. These short-term, interest-free working capital loans are intended to “bridge the gap” between the time a major catastrophe hits and when a business has secured longer term recovery resources, such as sufficient profits from a revived business, receipt of payments on insurance claims or federal disaster assistance. Short term loans of up to $50,000 are available with no interest for one year. If the loan is not repaid in one year an interest rate of 12% applies. Eligible Applicants are small businesses that maintain a business in the state of Florida, which were established prior to March 9, 2020, have suffered economic injury as a result of the pandemic, and employ between 2 to 100 employees. Eligible Applicants should apply directly with the state by going to https://floridadisasterloan.org/.

At Xander Law Group, our attorneys are actively working to assist our clients and with their ongoing legal needs during the COVID-19 outbreak. If you have any questions or need guidance through the loan application process, contact Xander Law Group today.