There are 2 PROGRAMS that make up the CARES Act. Make sure you know the difference.
The two programs that make up the CARES Act are The Paycheck Protection Program and The COVID-19 Economic Injury Disaster Loan. They are two different loan programs and you apply for each one differently…. and yes, your businesses can apply for both small business loans.
The Paycheck Protection Program
You must go through a bank for this, and since most banks are overwhelmed with requests, most are being instructed to first focus their efforts on their existing customers. So, save yourself a lot of time and start where you are already banking. The bank needs to be already an SBA lender. If you are unsure if your current bank is, you can usually determine this by checking out their website.
Please be patient with your bank. April 1st is the day banks are hoping to receive instructions on how to take applications, process them and distribute the funds. Banks are working at a fast and furious pace to get ready for the flood gates to open. (Note that the SBA is required to publish their final guidelines by April 27th, so it still can be a few weeks before this is all sorted out).
A good way to start preparing for the application process for the Paycheck Protection Program is to put a list together of payroll expenses from 2/14/2019 to 2/15/2020 (including insurance, benefits and retirement) and cap anyone over $100,000 to $100,000. Include any rent / lease expense, commercial property interest, and utilities paid during that timeframe. Once you have that total, divide it by 12 for the average monthly expense. Then, multiply that average by 2.5 and that is the current belief for the amount you can request through this program.
The goal with this program is to save jobs. It is a low-interest loan, with a term of up to 10 years, no personal guarantee or collateral required, and payments are deferred up to 6 to 12 months. The really important thing is, this loan may be forgiven and not counted as income, if it’s spent during the first 8 weeks on operating expenses, and you maintain the same average number of employees (there are some specific rules on this, so do your research), otherwise the amount forgiven is reduced.
The COVID-19 Economic Injury Disaster Loan (or EIDL)
You can apply for the EIDL online, directly with the SBA, by using this link: https://covid19relief.sba.gov/#/.
There is a lot more information online about this loan as compared to the Paycheck Protection Loan since Disaster Relief Loans have been issued in previous years. So, there is a lot you can research for yourself already out there.
The finer points are as follows: Loans up to $2M, 30-year term, low interest rate, and first payment deferred for a year. It will not be forgiven, as far as I’m aware, but it can be used for expenses not covered by the Paycheck Protection Program (discussed above). This includes restructuring short-term debt, notes and accounts payable.
Other Options to Save Your Company
If you are a business owner and trying to maintain the solvency of your company through these tumultuous times, SBA loans may not be the only option available to you.
If you have any surplus cash sitting around, you can use it to attempt to renegotiate old debts or existing relationships. You’d be surprised how many of your business relationships and vendors will compromise on existing contractual requirements or past debts, if you’re able to send them some money now.
Be careful with this, however. Mere words and promises to amend a contract or forgive a debt, is generally not enforceable, even if you send money in reliance of those words. Therefore, if you renegotiate in this way, make sure you have a small agreement that both parties sign and agree to, that specifically states the new terms of the amended agreement, and what’s being changed and what’s not from the old agreement. Otherwise, you could end up with a large legal bill fighting over something you thought was resolved with a quick phone call.
Things are moving pretty fast right now and the information can be confusing. Keep checking back to our Blog for updated information and helpful business tips at Blog – Law 4 Small Business, P.C. (L4SB).
We are all in this together and now, more than ever, Law 4 Small Business is here to help.