As of this writing, it is evident that banks and the SBA have been overwhelmed by the number of applications and the need for clarity on the CARES act emergency loan programs. While we cannot speak on how difficult the process may be, below is a summary of the programs that have been made available.
Paycheck Protection Program (PPP)
This program has authorized up to $349 billion in forgivable loans to small businesses to allow them to continue paying their employees during the COVID-19 crisis. Qualifying businesses are eligible for loans up to the lesser of $10 million or 2.5x average payroll. Business owners can go directly to their local bank/lender to apply for this loan. The total loan granted will be based on the following calculation:
- Prior 12 months payroll as submitted on Forms 941
- Individual employee earnings will be capped at $100,000
- The adjusted payroll will be divided by 12 and then multiplied by 2.5.
These loans have a maturity of 2 years and an interest rate of 1%. They will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (but at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.
Please follow this link to learn more about the PPP loan program directly from the SBA website.
Economic Injury Disaster Loan (EIDL)
In addition to the Paycheck Protection Program loan, the SBA is also offering an Economic Injury Disaster Loan (EIDL). This low-interest loan is available to small businesses and private, nonprofit organizations to help alleviate the economic injury caused by the Coronavirus. Qualified businesses will apply directly to the Small Business Administration.
The EIDL loan offers up to $2 million in assistance, and may be used to pay fixed debts, payroll, accounts payable and other bills that cannot be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses, and 2.75% for non-profits.
In order to keep payments affordable, the loan terms may extend up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.
Economic Injury Disaster Loan Emergency Advance
Another option to the EIDL is an advance loan of $10,000. Funds for this loan will be made available within three days of a successful application. This loan advance will not have to be repaid. It is considered an emergency grant.
Please follow this link to learn more about the EIDL loan program directly from the SBA website.
This is a brief summary of the loan options available under the CARES Act, but additional conditions and details are still emerging. We encourage you to contact your local lender or visit the SBA website for more complete information. Your Willow Creek Wealth Management advisor would be happy to discuss these programs with you, should you want to consider them.