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The Paycheck Protection Program (PPP) Loan and the Economic Injury Disaster (EIDL) Loan

The Paycheck Protection Program (PPP) Loan and the Economic Injury Disaster (EIDL) Loan

On Friday, March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES) was signed into law, and one part of it includes two loan programs for small businesses.

Paycheck Protection Program (PPP) Loan

Owners of businesses, including nonprofits, with less than 500 employees that have been impacted financially due to the coronavirus can apply for a nonrecourse loan up to the lesser of $10 million or roughly 2.5 times the average monthly payroll (there is a formula to calculate the loan amount) to help them maintain their employees.

The proceeds of the loan must be tracked separately, preferably in a separate bank account and only be used to cover payroll, rent, utilities, mortgage interest, and health insurance costs. A portion of the loan can be forgiven if it has been used properly. If any employees were terminated during the loan period, forgiveness will be reduced accordingly.

The loan terms are 2 years, payments to start in 6 months, and 1% interest. You can apply at any SBA-approved 7(a) bank; here is a list of some of them: https://www.sba.gov/article/2020/mar/02/100-most-active-sba-7a-lenders

The loans are first-come, first-served and are available until the $349 billion fund runs out or June 30, 2020, whichever is sooner. The application form is here: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Application-3-30-2020-v3.pdf. However, many banks have created their own applications and have also created additional conditions. For example, Bank of America requires borrowers to have an account with them.

Wells Fargo is no longer taking any more applications. https://update.wf.com/coronavirus/paycheckprotectionprogram/

Chase was encouraging borrowers to get in the queue here, and right now, it’s down:  https://recovery.chase.com/cares1

Bank of America has already taken billions of applications and is taking them here:

https://about.bankofamerica.com/promo/assistance/latest-updates-from-bank-of-america-coronavirus/small-business-assistance

Here is US Bank’s page: https://www.usbank.com/business-banking/business-lending/sba-loans/paycheck-protection-program.html

Fifth Third is taking applications: https://www.53.com/content/fifth-third/en/alerts/covid-sba-cares-act.html

Economic Injury Disaster Loan (EIDL)

A second option is the Economic Injury Disaster Loan (EIDL). Owners of businesses, including nonprofits, with less than 500 employees that have been impacted financially due to the coronavirus can apply for a loan up to $2 million to help them cover payroll, rent, and utilities. There is a $10,000 forgivable advance that is supposed to be funded in 3 days.

The interest rate on this loan is higher and payments start in one year. There is no forgiveness on this loan (except for the advance). A business cannot get both loans.  If a business has already applied for the EIDL, it can be rolled into the PPP loan.

Application is through SBA. https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/economic-injury-disaster-loan-emergency-advance

Please be cautious when applying for any loan.  There are very strong penalties for failing to comply with the requirements of these loans. If you need help with the payroll computation or setting up tracking for the loan proceeds and subsequent spending, please reach out any time.