James “Jim” L. Johnson
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. The CARES Act includes several provisions of significance for small businesses impacted by COVID-19 as well as lenders qualified to provide such businesses with loans and other financial assistance. As of April 3, 2020, many of these new provisions and programs were already available and beginning to be utilized by small businesses.
You have probably heard about the Paycheck Protection Program (PPP) created by the CARES Act, but the CARES Act also expands the Small Business Association’s Economic Injury Disaster Loan Program (EIDL) beyond its original scope. EIDL is the SBA’s long-standing disaster loan program for most businesses. The EIDL program was created to assist businesses, renters, and homeowners located in regions affected by declared disasters. In the new COVID-19 era, the EIDL program takes on added importance and has been expanded to meet demand.
Guidelines are being issued and thus the final program will be subject to change, but some important changes of note to EIDL are as follows:
- The CARES Act expands EIDL participation to include sole proprietors, independent contractors, nonprofits, tribal businesses, and ESOPs with fewer than 500 employees.
- The CARES Act allows for quick (i.e. within 3 business days) $10,000 loan advance, that will not have to be repaid, for applicants eligible for the SBA’s disaster relief program.
To receive the $10,000 emergency advance, it is not necessary to have an approved EIDL loan. However, if you are able to secure a Paycheck Protection Program (PPP) loan, the $10,000 grant will be subtracted from the forgiveness amount.
- EIDL Disaster loans made before December 31, 2020, to existing businesses will no longer require a personal guaranty on advances under $200,000, and advances may be used for payroll, materials, rent or mortgage payments, and other business obligations.
- Certain EIDL loans (under a certain $ threshold) will also not require security. The maximum EIDL is a $2 million working capital loan at a rate of 3.75% for businesses and 2.75% for non- profits with up to a 30-year term. Payments can be deferred for up to a year.
The CARES Act provides new opportunities for businesses who have been affected by COVID-19 and decisions made by the government to combat COVID-19. If you need assistance wading through the vast amount of information that is out there and available through many different sources, our attorneys are available to assist.
Wharton Aldhizer & Weaver, PLC has assembled a knowledgeable team and has been working with several of its clients in understanding and applying for loans under the various programs. We are available to offer our assistance to you or answer any questions you may have.