As a part of the CARES Act stimulus bill passed last month aimed towards combating the economic impact of the coronavirus, $2 trillion of federal aid has been made available to small businesses. Businesses and nonprofit organizations with fewer than 500 employees, including sole proprietorships and freelancers, are eligible to receive aid through the Paycheck Protection Program and the Economic Injury Disaster Loan program.
The Paycheck Protection Program (PPP) offers loans to help small businesses cover payroll and other recurring expenses like utilities and rent. Companies are eligible to borrow up to two months of their average payroll costs, plus an additional 25%, up to $10 million. Additionally, this program can offer companies full or partial loan forgiveness based on its retention of employees for eight weeks following the disbursement of the loan. If the loan is only partially forgiven, there is a two-year payback period at an interest rate of 1%, and there are no payments due during the first six months after disbursement. To apply for a loan through the PPP, each company must work with a local bank or lender before the application deadline of June 30, 2020. It is also important to note that these loans are provided on a first come, first served basis.
The other program that has been extended by the stimulus package is the Economic Injury Disaster Loan (EIDL) program. Other than refinancing previous loans, the money disbursed can be put towards any expense the company incurs. Also, like the Paycheck Protection Program, the EIDL program does offer forgiveness, but only up to $10,000. The rest of the loan can be repaid on a term of up to 30 years with an interest rate of 3.75% for small businesses and 2.75% for nonprofits, with no payments due for the entire first year. Additionally, the Small Business Administration (SBA) has relaxed its collateral requirements, with no personal guarantee necessary for loans below $200,000. In the application, each company must provide information on its revenues and cost of goods sold for the previous calendar year, and the SBA will determine the amount of the loan. Companies can complete the application online through the Small Business Administration’s website until December 31, 2020: https://covid19relief.sba.gov/#/.
Finally, please note that additional economic assistance is currently being proposed in federal legislation with interest from both political parties.
For further reading please see the below article from the Capital Group: https://www.capitalgroup.com/advisor/insights/articles/what-need-know-cares-act.html?sfid=778897051&cid=80005119&et_cid=80005119&cgsrc=SFMC&alias=D-btn-LP-6-A1cta-Advisor