[This article has been updated as more information has become available. If you have questions, I strongly urge you to first review the link to Senator Dianne Feinstein’s Q&A on the application of the CARE Act: California Senator FAQs Related to CARE Act]
CARE ACT 2020
COVID-19 PAYCHECK PROTECTION PROGRAM
How to Obtain Funds Under CARE Act re: COVID-19
I have heard from a number of clients about interest in the $2 trillion federal stimulus package commonly referred to as the CARE Act passed by the federal government in response to COVID-19, aka the Coronavirus. Particularly, small business owners are interested in how they may obtain allotted Paycheck Protection Program funds. I will answer that question here, and provide you with the basics you need to know before applying. A link to apply is at the bottom, but please read this first in its entirety. A short checklist is also at the bottom.
According to the SBA’s COVID-19 Disaster Loan Applications page:
“[t]he loan advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available within three days of a successful application, and this loan advance will not have to be repaid.” (Citation Link)
This SBA statement should be considered with caution. Despite the SBA language above, some loans and interest will have to be repaid.
These loans will be overseen by the U.S. Small Business Administration. Loans are available through June 30, 2020.
Who is Eligible:
Payroll protection loans are available to all businesses that would normally qualify for a SBA 7(a) loan. That means businesses with fewer than 500 employees, but there are some exceptions found on the U.S. Small Business Administration Table of Small Business Size Standards. You can find those exceptions here on the SBA website: SBA Table of Business Size Standards. These exceptions seem to lean toward businesses with hundreds of employees and millions of dollars in income. If you are uncertain if you qualify you should contact legal counsel or the SBA directly and inquire.
For businesses that manage to avoid layoffs of employees, these loans can potentially be forgiven. Cautionary note: If the business lays off employees it could leave the business having to repay those funds. Tread carefully when it comes to layoffs! Consult your legal counsel before doing so or you could find yourself having to repay a loan that was otherwise going to be converted into a government grant, which would have relieved you from having to pay back the funds.
Independent contractors can even apply for payroll protection loans as well, though they have not typically been eligible for SBA loans in the past.
Will I Have to Pay Back the Loan:
The bulk of the CARE Act is $350 billion in new “forgivable” loans, with loans available for up to $10 million per business. Under the Act, businesses would not have to repay portions that were spent on paying employees, a mortgage, rent or utilities. This includes forgiveness of up to 8 weeks of payroll.
What About Interest:
Such loans carry an interest rate up to 4 percent. If the loan is ultimately converted to a grant because you retained your employees, you will not have to pay back the interest accrued. For the sake of example only, interest accrual on $20,000.00 at 4% for a period of one (1) year amounts to $800.00; Two year accrual (compound) would be $1,632.00.
How Much Can I Get:
The loan amount shall be based on how much the company paid its employees between January 1, 2020, and February 29, 2020. The Act allows businesses to take out loans for 2.5 times their average monthly payroll from 2019, so you need to know that payroll number in advance of applying. It should include salary and wages, as well as health care benefits and paid sick leave. Salaries over $100,000.00 per year would not qualify for forgiveness.
How Long Will it Take to Receive Funds:
So far, the federal government assertion is that approval is expected to take about two weeks. A further upside is that business owners will not have to provide personal guarantees or pledge their assets as collateral.
However, the rollout of this program has been anything but successful so far. There were inconsistencies in the information released by the feds, a lack of adequate guidelines provided to banks and other lenders, banks reached their allotted fund limits in hours leading to millions of businesses struggling to even find a lender who would take their application. While I am unaware of any business actually obtaining funds as of this date, it is entirely possible some have. Have a backup plan.
Caution: In the event you do receive this funding keep excellent records for when you have to prove up how you applied the funds.
Caution: Keep excellent records for when you have to prove up how you applied the funds.
$10,000.00 SBA Economici Injury Emergency Grant Program:
“The CARES Act creates a new SBA Economic Injury Emergency Grant Program. These 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 Economic Injury Disaster Loan (EIDL). To access the advance, you must first apply for an EIDL and then request the advance. The advance 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.” (See Senator Feinstein FAQs-Link below) Please note that accepting these funds may result in tax consequences that have not yet been fleshed out.
Where Do I Apply:
To apply for a COVID-19 Economic Injury Disaster Loan, APPLY HERE.
Here are links for further information:
Senator Dianne Feinstein Q&A on the CARE Act application: California Senator FAQs Related to CARE Act
Coronavirus (COVID-19): Small Business Guidance & Loan Resources: Website Devoted Solely to Coronavirus Measures.
The general Disaster Loan page for the SBA: Disaster Loan Page
The full text of the 880 page CARE Act is here: CARE ACT
Checklist/Information to Consider Before Applying:
□ How many employees do you have? ______
□ Does an exception apply to me? (500 or more employees? Also see SBA Table of Business Size Standards.)
□ Have I recently laid off employees? (If yes, review guidelines or consult legal counsel.)
□ Am I applying for enough money to avoid laying off employees? (If not, and I have to layoff employees, I will have to pay back the loan.)
□ Do I understand I will have to pay back interest as high as 4% on the loan?
As always, if you have any questions, please feel free to contact us to address your concerns. I may be reached at RRudolph@RCattorneys.com.
Stay Safe. Stay Healthy.