As most small to medium-sized business owners know, the Coronavirus Aid, Relief, and Economic Security (CARES) Act has recently been passed and will provide assistance to those businesses that have been affected by Covid-19 and that qualify. Due to the breadth of this Act and the swiftness in which it was passed, many business owners are unsure what parts of the Act apply to them and how they can receive assistance. We’ve written this article to explain the two most important parts of the Act that apply to business owners. If you want to know how the Act will affect you as an individual, please reference this article.

Economic Injury Disaster Loan (EIDL)

If you’re a small business and struggling with basic expenses due to the pandemic, you could qualify for an emergency advance in addition to an SBA loan.  The loan, which is called an Economic Injury Disaster Loan (EIDL), offers an advance of up to $10,000 to those businesses experiencing a temporary loss of revenue and these funds will be made available after the business successfully applies. The advance is considered a grant, meaning it does not have to be paid back. Up to $2 million can additionally be obtained with this loan with a rate of 3.75% for businesses and 2.75% for non-profits. The term of the loan can be up to 30 years and the first payment is not due until one year after the loan origination.

To qualify, you must own a small business with fewer than 500 employees. This includes independent contractors, those who are self-employed, and sole proprietors as well as veterans organizations and private non-profit organizations.

Paycheck Protection Plan

In addition to the EIDL advance and loan, small businesses can also apply for the Paycheck Protection Program. This is a loan to incentivize small business owners to keep their employees on payroll. If employees are kept on payroll for eight weeks, the loan will be forgiven if the money is used for their payroll expenses or for mortgage interest, rent, or utilities. Note that at least 75% of the loan money must be used for payroll expenses for the loan to be forgiven.

To apply for this loan, you must work through an existing SBA lender including federally insured credit unions, federally insured banks, or Farm Credit Systems that are participating in the program. Applications started as of April 3, 2020 and the program will be available through June 30th of 2020.

This program is also for small businesses with fewer than 500 employees and includes those who are self-employed, independent contractors, or sole proprietorships in addition to non-profits and veterans organizations. Those who own businesses in the food or hospitality industry and have more than one location qualify if an individual location employs fewer than 500 employees.

Any loan payments on the PPP will be deferred for six months and there are no personal guarantees required or fees charged. For the portions of the loan that need to be repaid, there is a maturity of two years and an interest rate of 1%. Forgiveness of the loan will be reduced if the number of full-time employees at a business is reduced or if there is a reduction in their salaries or wages.

This is a confusing and stressful time for small business owners, entrepreneurs, and those working to build their careers as independent advisors. Knowing more about the Act and how it can help you through this difficult time will help you deal with the unknown and keep your focus on your business and clients. If you have questions about the Act applies to your business, please reach out so we can further the discussion. Stay safe and stay healthy!