Understanding CARES Act Funding Options for Your Small Business
Initially, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed on March 27th, created or expanded financial resources available for struggling businesses and entrepreneurs. Within less than two weeks, funding for specific programs had been used up. Due to the tremendous need, additional funding for some programs has come through. However, it is likely to run out again quickly. If you plan to take advantage of any of the options below, it is advisable that you apply as soon as possible.
Although the CARES Act covers a lot of ground for individuals and businesses of all sizes, there are specific incentives and programs for small businesses. A small business for these purposes is typically defined as a company with less than 500 employees, though that figure varies for certain industries.
The small business funding options under the CARES Act are administered through the Small Business Association (SBA). There are 4 new temporary programs. Some of these funding sources, under certain circumstances, will not need to be repaid.
Paycheck Protection Program (PPP)
The Paycheck Protection Program (PPP) was established as an incentive for employers to keep their employees on the payroll despite closure or reduced business. Although the initial funding was quickly depleted, an additional $310 billion has been made available and as of April 27th, applications were being accepted and processed again.
Eligible businesses that have been negatively impacted by coronavirus can apply for a loan of up to $10 million. The specific max loan amounts for each business are capped at 250 percent of (or 2.5 times) the average monthly payroll costs.
In order to qualify for this program, the business must retain or quickly rehire employees at full salary, whether they are working full hours or not. Although the PPP loan does not have to be solely used to cover the salary of all employees – for example, it can be combined with other funding such as an EIDL, discussed below – the company must maintain total full-time headcount and not reduce salaries in order to be eligible for full forgiveness. The loan proceeds can be used for salaries/wages as well as related expenses, mortgage interest, rent, and utilities, but 75% of the forgiven amount must be used for payroll.
Non-reimbursable portions that require repayment will be deferred for at least six months and no business fees will be incurred. Unlike many other loans, no personal guarantees or collateral are required. If approved, these loans can be retroactive to February 15th and are good through June 30, 2020. These loans can be obtained through any federally insured depository institution or credit union as well as institutions that are already established as an SBA 7(a) lender.
Unfortunately, due to high demand, both the Economic Impact Disaster Loan (EIDL) and EIDL Advance are no longer accepting applications. Although this program has not received additional funding, there is a potential it will in the coming weeks, so keep your eyes open for updates.
An EIDL Advance is another funding option that does not need to be repaid. These advances are grants that are intended for businesses that have already applied for an EIDL. The original EIDL program existed prior to coronavirus. Many small businesses were applying for this before specific relief measures were announced as it was an existing, applicable program.
The EIDL Advance, however, is meant to rush a portion of an approved EIDL loan, up to $10,000. In addition to advancing part of the loan, the portion that is advanced will not need to be repaid as long as it is used appropriately. According to the U.S. Senate Committee on Small Business & Entrepreneurship, these advances “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.”
SBA Express Bridge Loan
If you have an existing business relationship with an SBA Express Lender and have an urgent need for funding, you may be eligible for an SBA Express Bridge Loan of up to $25,000. These loans can be individual term loans or used as emergency funds – to bridge the gap – for those awaiting a response for an EIDL. If you’ve already applied for an EIDL, this loan will be repaid in part or in full through funds secured through the EIDL, if any. You may still apply for this loan without a pending EIDL application, especially now that the EIDL program is no longer taking applications. Because the lender is an Express Lender and your business has an existing relationship, they are able to be distributed rapidly, usually within days.
SBA Debt Relief
In addition to the programs listed above, existing regular (non-disaster related) SBA loans, or those acquired prior to September 27, 2020, that are in good standing will have their payments fully covered for up to six months. This includes 7(a), 504, and microloans. These payments are automatic and do not require an application. Existing disaster loans, although not covered, will be automatically deferred through December 31, 2020.
Additional & Future Resources
Various additional measures have been introduced to the legislature. Their timing and fate may still be uncertain but, in order to be able to access and utilize the resources that are being made available, it is advantageous to stay current on news to know when new measures are passed. Furthermore, states, cities, and specific industries have their own unique relief programs and measures as well. Do your research in all areas applicable to you to ensure you are taking advantage of the best programs to help you keep your business afloat.
Application assistance is being provided by the SBA resource partner nearest to you. Find the nearest Small Business Development Center (SBDC), Women’s Business Center (WBC), or SCORE mentorship chapter here. These partners also provide free business counseling and low or no-cost business training that may further your resiliency during this trying time.