Congress Expands Coronavirus Relief for Small Businesses

As of July 6, 2020 the Paycheck Protection Program resumed accepting new applications and businesses now have until August 8 to apply. Read more on this update here

Congress and the Trump administration have struck a deal on another piece of legislation, the latest in a series of federal measures intended to provide relief in response to the novel coronavirus (COVID-19) pandemic. The $484 billion legislation, which is being referred to as the Interim Stimulus Plan, amends the Coronavirus Aid, Relief and Economic Security (CARES) Act enacted in late March. Among other things, it provides additional funding to two loan programs designed to help small businesses slammed by the economic shutdown.

Paycheck Protection Program funds
Most notably, the Interim Stimulus Plan adds another $310 billion to the Paycheck Protection Program (PPP) managed by the Small Business Administration (SBA). The CARES Act originally allotted $349 billion to the program; however, those funds were depleted in less than two weeks. As of 9:30 am on April 27, PPP is accepting new loan applications from approved lenders on behalf of eligible borrowers.

The PPP program is available to many U.S. small businesses — including sole proprietors, self-employed individuals, independent contractors and nonprofits — affected by COVID-19. Businesses can qualify for 100% loan forgiveness for amounts used for payroll costs, mortgage interest, and rent and utility payments during the eight weeks after receipt of the loan, as long as no more than 25% of the loan proceeds are used for nonpayroll costs.

Borrowers also must maintain staff and payroll to qualify for full forgiveness. Loan forgiveness will be reduced if salaries and wages are reduced by more than 25% for any employee who made less than $100,000 annualized in 2019. The interest rate on the non-forgiven portion of a PPP loan is 1%, and the loans run two years. All payments are deferred for six months; although interest will continue to accrue. Borrowers can prepay without penalties or fees. To learn more about calculating loan forgiveness, check out our article here.

Current and Future Status of PPP Program
Small businesses generally are defined as those with fewer than 500 employees. However, for businesses in the hotel and restaurant sector, the CARES Act applies the 500-employee threshold on a per-physical location basis. This explains how large businesses with easier access to alternative funding sources, such as Shake Shack and the parent company of Ruth’s Chris Steak House, obtained PPP loans in the first round of lending (Shake Shack and the parent company of Ruth’s Chris Steak House have since pledged to return their $10 million loans). The new law leaves this “loophole” intact; however, the U.S. Treasury released guidance making it more difficult for large public companies to have access to PPP funds. The Treasury also released guidance with instructions for franchise and hospitality companies which received funds to pay them back immediately.

Some small businesses also ran into problems when applying for the first round because they didn’t have existing credit relationships with major financial institutions. The new law aims to remedy this problem by carving out $60 billion of the additional funding for smaller lenders which tend to serve minority and woman-owned small businesses. Specifically, it designates $30 billion of the $310 billion for banks and credit unions with $10 billion to $50 billion in assets and another $30 billion for institutions with less than $10 billion in assets.

Eligible small businesses can apply for PPP loans by contacting an SBA approved lender and completing the SBA application. We recommend employers act quickly as funds are expected, once again, to go fast.

EIDL funds
The Interim Stimulus Plan also adds $50 billion in loans and $10 billion in grants to the SBA’s Economic Injury Disaster Loan (EIDL) program. It also extends EIDL relief to agricultural businesses with no more than 500 employees. While similar to the PPP, the EIDL has less favorable terms: the EIDL is not forgivable and can require collateral as security.
Under the CARES Act, small businesses with fewer than 500 employees experiencing a temporary loss of revenue due to COVID-19 can obtain advances of up to $10,000 within days of a successful application; the loan advance doesn’t have to be repaid. The SBA has simplified its existing EIDL application process and relaxed the credit standards in light of the COVID-19 crisis.

The interest rate on EIDLs is 3.75% for businesses, and businesses can borrow up to $2 million. Repayment periods can run as long as 30 years, determined on a case-by-case basis based on the borrower’s ability to repay. The CARES Act provides an automatic one-year deferment on repayment, but interest begins to accrue when the proceeds are disbursed.

Funds for Hospitals and Testing
In additional to funding for small businesses, Congress approved additional funding for hospitals and Coronavirus testing. $75 billion has been allocated for healthcare providers and another $25 billion for testing, split between states and federal agencies.

What’s next?
While this latest Coronavirus relief package provides additional funding for small businesses, some key questions regarding eligibility remain unanswered. Follow along with our Trusted Advisors on our COVID-19 Resources page and we’ll keep you posted on the latest developments.

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