The Coronavirus Aid, Relief, and Economic Security (CARES) Act created the Paycheck Protection Program as one tool to help small businesses. But it also provided for additional emergency funds under the SBA’s existing Economic Injury Disaster Loan (EIDL) program. Congress appropriated $10 billion for the program. Here are some of the main details on this program.
The CARES Act expands and modifies the existing EIDL program in a number of important ways. The existing loan rules, unless modified, will still apply. The SBA West Virginia office has a helpful overview of the EIDL program here that goes through some of those existing rules. Here are some main items that the CARES Act modifies.
Eligible Entities. Disaster declarations have been issued for each State and Territory of the U.S., which means these loans are available throughout the U.S. Eligible entities includes a business, cooperative, ESOP, or certain tribal small business concerns that have 500 employees or less. Also included are individuals operating as a sole proprietorship or independent contractor. This is in addition to the small business concerns, private nonprofit organizations, and small agricultural cooperatives that were already eligible under the existing disaster loan program.
Interest Rates. For Businesses and Small Agricultural Cooperatives without Credit Available Elsewhere, the interest rate will be 3.750%. For Non-Profit Organizations without Credit Available Elsewhere, the rate will be 2.750%.
Advances. The SBA can provide up to $10,000 within within 3 days after the SBA receives an application, as long as the advance for allowable purposes such as sick leave for employees due to COVID–19, maintaining payroll, meeting increased costs for materials, making rent or mortgage payment, or paying other debts. Interestingly, the “applicant shall not be required to repay any amounts of an advance provided under this subsection, even if subsequently denied a loan.” If the applicant gets a loan, “the advance amount shall be reduced from the loan forgiveness amount for a loan for payroll costs.”
Other Terms. In addition, certain restrictions are waived for loans made in response to COVID–19:
- Rules related the personal guarantee on advances and loans of not more than $200,000 during the covered period for all applicants;
- The requirement that an applicant needs to be in business for the 1-year period before the disaster, as long as the business was in operation on January 31, 2020; and
- The requirement that an applicant be unable to obtain credit elsewhere. (although there is still a requirement that the loan cannot cover losses covered by insurance–no double recovery)
In addition, the SBA cannot require a tax return to establish credit. Rather, it can be based on credit score or an alternative method. The law also keeps the existing maximum for these loans, which is $2 million per applicant.
Covered Period. Loans are allowed for the period January 31, 2020 through December 31, 2020 (what the law calls the covered period). According to the SBA, though, the application deadline is from December 16, 2020 through December 21, 2020, depending on the date of the disaster declaration. For instance, SBA declared disaster in California on March 16, so the deadline to apply is December 16.
For additional details, be sure to check the SBA’s guidance, as the details on this program are being filled in rapidly.