Business & Nonprofit Disaster Relief Loan Program Update
Filed under:COVID Updates
Updated: 4/1/20, 12:00PM PST
The federal disaster relief loan program details are emerging quickly, and with the passing of the CARES Act on Friday, March 27th, there are even more options for businesses and nonprofit organizations.
There are two loan options that you may consider applying for; the EIDL loan (available now) and the PPP loan (available as early as Friday, April 3).
Economic Injury Disaster Loan (EIDL)
If you have not applied, you should do so right away! The Small Business Association (SBA) has updated the application process on their website.
Upon completion of the application you will have an opportunity to request a $10,000 emergency grant (mentioned below):
- CARES Act approved additional $10 billion to this program.
- Loans will be determined based on credit rating and amount of the disaster loss.
- If approved, the EIDL program loan will be amortized over 30 years at a rate of 3.75%.
- No payment will be required for the first 12 months.
- Once your application has been received you should request an emergency grant of $10,000. This is not taxable regardless of whether you qualify for additional EIDL funds.
- The SBA will contact you following receipt and review of the application.
Please let us know if we can assist with preparation of the EIDL loan process.
Paycheck Protection Plan (PPP)
This is a new Section 7(a) SBA loan that was passed as part of the CARES Act. The following is the information we have compiled to date:
- Per the SBA’s website, lenders can begin taking loan applications beginning Friday, April 3.
- Unlike the EIDL program above, the PPP loan application will be made through your banker.
- Borrowers will be able to request up to 2.5 times their monthly payroll.
- Compensation paid to any one employee is limited to $100,000 annual salary ($8,333 per month).
- Loan proceeds can be used for qualified payroll costs, rent, utilities, interest on mortgage, and other debt obligations.
- Payroll costs include:
- compensation to employees
- payments for paid time off, parental, family, medical or sick leave
- severance payments
- payments required for group health care benefits (including insurance premiums), retirement benefits, and state and local employment taxes
- This loan is eligible for forgiveness if the funds are used to pay 8 weeks of payroll or other qualifying expenses.
- Forgiveness amounts would be reduced proportionally by any reduction in employees retained compared to the prior year & reduced by the reduction in pay of any employees beyond 25% of their prior year compensation.
- If you have previously received the EIDL loan, those funds may be “rolled over” under this plan if used for qualifying expenses.
- This loan will require diligent bookkeeping of records to show that the funds were used for qualifying expenses and eligible for forgiveness.
- PPP loans have a 100% federal guarantee with no collateral or personal guarantee required. Borrowers would have to make a good faith certification that the loan is necessary due to economic uncertainty related to COVID-19, the funds will be used to retain workers & maintain payroll, lease, and utility payments.
- PPP borrowers that re-hire workers previously laid off during the crisis wouldn’t be penalized for having a reduced payroll at the beginning of the loan period.
- The non-forgivable portion of the PPP will be paid back over 2 years at 0.5%.
***New update on 4/1/20*** Important note for those who own real estate: You would be eligible to apply for the EIDL emergency grant for your business and the real estate, if the real estate is owned separately. The PPP is focused on providing payroll support for employers. So only those entities that have historically paid payroll or independent contractors will benefit from the forgivable portion of the Act.
There are other loan options available like the SBA Express and SBA Express Bridge Loan. You should contact your local banker to see if these options are right for you.
Many tax payers are concerned with paying payroll at this time. However, the CARE Act will allow employers to defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government (this is 6.2% on employee wages). This deferred employment tax would be required to be re-paid over the following two years, with half to be paid by December 31, 2021, and the other half by December 31, 2022.