CARES Act Details for Small Businesses Released

The Door County Economic Development Corporation has provided a breakdown of the new financial assistance options available for small businesses as part of the CARES Act, the legislation passed by Congress last week to provide economic relief to businesses and citizens.

On Thursday, Treasury Secretary Steve Mnuchin announced that the small business loans available for the program will now have a 1 percent interest rate, as opposed to the no interest loans touted when the legislation was passed. Most loans can be forgiven.

For a detailed look at the lending rules click here>>

There are three (3) main components for business financial assistance:

  • Paycheck Protection Program (PPP)
  • Economic Injury Disaster Loans (EIDL)
  • Small Business Debt Relief

Paycheck Protection Program (through approved SBA lenders)
Application process commencement is targeted for April 3. It is recommended that businesses contact their current bank or SBA approved lender and start the application process immediately.

  • Program would provide cash-flow assistance through 100 percent federally guaranteed loans to employers who maintain their payroll during this emergency.
  • Layered on top of SBA 7(a) loans and will be processed by SBA approved lenders.
  • Covers small businesses with 500 or less employees; individuals who operate a sole proprietorship or as an independent contractor and eligible self-employed individuals; 501(c)(3) nonprofit organizations, a 501(c)(19) veterans organization, or Tribal business concerns; and Any business concern that employs not more than 500 employees per physical location of the business concern and that is assigned a North American Industry Classification System code beginning with 72 -Accommodation and Food Service. See for details.
  • Eligible if business was harmed by COVID-19 between February 15, 2020 and June 30, 2020. This program is would be retroactive to February 15, 2020, Deadline to file is June 30 under the current PPP.

Loan Calculation Clarifications:

  • Non-Seasonal: 2.5 times the average total monthly payments by the applicant for payroll costs incurred during the 1-year period before the date on which the loan is made, except that, in the case of an applicant that is seasonal employer, 
  • Seasonal: 2.5 times the average total monthly payments for the 12-week payroll period beginning February 15, 2019, or at the election of the eligible recipient, March 1, 2019, and ending June 30, 2019.
  • Not in business during the period beginning on February 15, 2019 and ending on June 30, 2019: 2.5 times the average total monthly payments by the applicant for payroll costs incurred during the period beginning on January 1, 2020 and ending on February 29, 2020
  • Terms: not to exceed 4 percent for up to 10 years. Max loan is $10 million.

Payroll eligible items:

  • Compensation (salary, wage, commission, or similar compensation, payment of cash tip or equivalent)
  • Payment for vacation, parental, family, medical, or sick leave 
  • Allowance for dismissal or separation
  • Payment required for the provisions of group health care benefits, including insurance premiums
  • Payment of any retirement benefit
  • Payment of State or local tax assessed on the compensation of employees

Eligible use of loan funds:

  • Payroll costs except employee/owner compensation over $100,000
  • Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
  • Employee salaries, commissions, or similar compensations (see exclusions above
  •  Payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation)
  • Rent (including rent under a lease agreement)
  • Utilities
  • Interest on any other debt obligations that were incurred before the covered period
  • Loan forgiveness is equal to the sum of the following payroll costs incurred during the covered 8-week period compared to the previous year or time period, proportionate to maintaining employees and wages (excluding compensation over $100,000): Payroll costs plus any payment of interest on any covered mortgage obligation (not including any prepayment or payment of principal on a covered mortgage obligation) plus any payment on any covered rent obligation plus and any covered utility payment. The amount of loan forgiveness is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees. The businesses must maintain the same average number of employees for the first eight-week period beginning on the origination date of the loan as you did from February 15, 2019 – June 30, 2019 or from January 1, 2020 until February 15, 2020
  • Reductions in employment or wages that occur during the period beginning on February 15, 2020, and ending 30 days after enactment of the CARES Act (March 27, 2020), (as compared to February 15, 2020) shall not reduce the amount of loan forgiveness IF by June 30, 2020 the borrower eliminates the reduction in employees or reduction in wages.
  • If a business secured an Economic Injury Disaster Loan (EIDL) between February 15, 2020 and June 30, 2020, this can be refinanced under a PPP loan, adding the outstanding loan amount to the payroll sum. BUT, it may be beneficial to keep the EIDL separate since the interest rate is 2.75% to 3.75% up to 30 years compared to 4% and 10 years.

Economic Injury Disaster Loans (EIDL)

Apply here:

  • The CARES Act for small businesses expanded eligibility for the SBA’s Economic Injury Disaster Loans (EIDLs). In early March, the SBA’s disaster loan program was extended to all small businesses affected by COVID-19, but the CARES Act opens this program up further and makes it easier to apply. 
  • EIDLs are now also available to Tribal businesses, cooperatives, and ESOPs with fewer than 500 employees. They are also available to all non-profit organizations, including 501(c)(6)s, and to individuals operating as sole proprietors or independent contractors.
  • EIDLs can be approved by the SBA based solely on an applicant’s credit score.
  • EIDLs that are smaller than $200,000 can be approved without a personal guarantee.
  • EIDLs are lower interest loans of up to $2 million, with principal and interest deferment available for up to 4 years, that are available to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses. Interest ranges from 2.75% (non-profits) to 3.75% (small business).
  • SBA will look at the last three years historical to determine what the business could have paid if the disaster would not have occurred. The loan funds will not provide for lost sales.
  • There is 12 month of payment deferral automatically built into the disaster loan that begins from the date of the Note, but interest accrues
  • EIDL are working capital loans that may be used to pay fixed debts, payroll, accounts payable, and other bills that could have been paid had the disaster not occurred. The loans are not intended to replace lost sales or profits or for expansion. Funds cannot be used to pay down long-term debt.
  • Those eligible are the following with 500 or fewer employees:
  • Small business concerns (including sole proprietorships, with or without employees)
  • Independent contractors
  • Cooperatives and employee owned businesses
  • Private non-profits
  • Tribal small businesses
  • Emergency grants (advancesare available up to $10,000 and can be forgiven if spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments or repaying obligations that cannot be met due to revenue loss. 
  • Available between January 31, 2020 – December 31, 2020. The grants are backdated to January 31, 2020 to allow those who have already applied for EIDLs to be eligible to also receive a grant.
  • For businesses with a relationship with an SBA Express Lender, a business may access up to $25,000 quickly while making an application for an Economic Injury Disaster Loan (EIDL). This is the Express Bridge Loan.
  • If a business secured an Economic Injury Disaster Loan (EIDL) between February 15, 2020 and June 30, 2020, this can be refinanced under a PPP loan, adding the outstanding loan amount to the payroll sum. BUT, it may be beneficial to keep the EIDL separate since the interest rate is 2.75% to 3.75% up to 30 years compared to 4% and 10 years.

Small Business Debt Relief Program

  • Provide immediate relief to small businesses with non-disaster SBA loans, in particular 7(a), 504, and microloans. Under it, SBA will cover all loan payments on these SBA loans, including principal, interest, and fees, for six months. This relief will also be available to new borrowers who take out loans within six months of the President signing the bill into law.
  • Covers existing and new SBA 7(a) and 504 loans.
  • Businesses must contact their 7(a), 504, and microloan lenders to implement.

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