CARES ACT Passes What You Need To Do Now

As I’m sure you have heard the CARES Act has passed the Senate and House and has been signed into law by the President.

We have some information about the act and the SBA loan options below. First, we have a quick summary of what your action items should be at this point.

What you should do now:

  1. Apply for the SBA Economic Injury Disaster Loan (EIDL) section 7(b) as soon as possible.  This is the SBA loan that we have been telling you to apply for. There is some free money associated with this and it is a first come first serve basis. The SBA is getting bombarded with applications so make sure to get your application in now! Below is specific information on how to sign up.
  2. Make sure to keep a full copy of your application!
  3. If you have already applied, did you get confirmation that the SBA is reviewing it? The application process has gone from online to downloading applications; the SBA website has crashed multiple times. If you have submitted it, but did not get confirmation, that it is under review, we recommend that you re-submit your application as soon as possible

There are a couple of Small Business Administration (SBA) loan options available for employers. Below is a quick recap of each:

Economic Injury Disaster Loan (EIDL)- Section 7(b) of SBA- This is the loan we had recommended you apply for in our Disaster Action Plan last week and the one referenced above:

  • This is the only SBA loan you should applying for; do it now if you have not already
  • This is a loan that will have to be repaid – it will not be forgiven
  • This loan is for working capital to weather the storm for the next few months
  • For any loan made under this program, no personal guarantee will be required on loans up to $200,000.
  • If you apply for this loan, you can request an emergency grant of up to $10,000 which the SBA must provide within 3 business days.  Money from the grant may be used to pay for employee sick leave (COVID-19-related), mortgage or rent, and other overhead expenses. This grant will not have to be repaid; even if you are not approved for the loan and the grant is not taxable. $10,000 of free money just for applying.
  • The interest rate is fixed at 3.75% and the repayment period could go as high as 30 years.
  • Payments are not required for 12 months
  • Approval for this loan is based on the applicant’s credit score and a reasonable expectation that the loan can be repaid.  The SBA primarily looks to tax returns to determine repayment ability.  An applicant does not need to be declined by a bank to receive an EIDL.
  • We have been told that they have approved 90% of the applications

How to Apply for the SBA EIDL 7(b) Loan:

The process for completing the EIDL disaster relief loan has changed.  They have fixed some of the problems with the website crashing and the inability to complete application and download forms.   Below is the link you should go to if you have not already completed the application.

You will no longer complete your application online but be required to download forms and then once everything is completed load them to the same website.   Forms to download:

  • Corporation, Partnership or LLC ( single member or partnership)- need to download
    • Business loan application
    • Economic Injury disaster loan supporting information
    • Personal Financial Statement
    • Request for Transcript of tax return-4506-T
    • 2017-2018 for the business applying for the loan
    • 2017-2018 for the entity that is a member of the partnership if applicable
    • 2017-2018 for your personal tax return
    • Schedule of liabilities
    • 2019 Business Tax Return.  If not filed yet, please submit 2018 return.
  • Sole Proprietor – Not set up as an LLC
    • Home or Sole Proprietor loan application
    • Economic Injury Disaster Loan supporting information
    • Personal financial statement
    • Request for Transcript of tax return-4506-T
    • 2017-2018 for your personal tax return
    • Schedule of liabilities
    • 2019 Personal Tax Return.  If not filed yet, please submit 2018 return.

The CARES Act has also created the Paycheck Protection Program Loan “PPP” – Section 7(a) of SBA**

  • This loan is not currently available to apply for; when it is ready in a few weeks, you will go through a bank to apply
  • These loans are fully guaranteed by the federal government through December 31, 2020.
  • They are limited to 2.5x the average monthly payroll costs (wages, payroll taxes, health insurance, PTO, retirement benefits)
  • There will be an amount to be forgiven – this amount must be calculated and cannot exceed the sum of the payroll costs, mortgage interest, rent and certain utility payments in the 8-week period following funding.
  • To seek forgiveness, an application will be provided to the lender that includes the documented employer costs during the 8-week period after loan closing.
  • No fees, personal guarantees or collateral
  • Interest is capped at 4%
  • If money must be paid back, it would be over 10 years

**Currently, there is no way to apply for the Paycheck Protection Loan.  Under Section 1113 of the CARES Act, the SBA has 15 days from the date the CARES Act becomes law to provide regulation and necessary guidance to get the program operating and then likely another 2-4 weeks to go through the loan process.  Right now, the only thing to do is to apply for the EIDL and then wait.

We’re hopeful for this timeline:

  • CARES Act signed into law – March 27
  • SBA regulation and guidance provided – April 11
  • Initial loans processed and being funded – First part of May

Please Note: We are still waiting for guidance on whether you have the ability to utilize both the EIDL (7b) and the PPP Loan 7(a) loan.  There is some wording that says a “borrower cannot get multiple guaranteed loans/grants for the same purpose”; SBA is working on how they can tell if a borrower has received monies for the same purpose under two different programs, i.e., get EIDL funds for operating expenses and then apply for same money under PPP 7(a) for payroll costs, mortgage interest, rent and certain utility paymentsWe have been told by lenders that you can include or roll the EIDL disaster money into the PPP grant when you apply to SBA (refinance) and these two programs are supposed to be complementary, not overlap, in uses of proceeds.  We, however, are not 100% sure on this, and this is why we sent the email alert out on Wednesday, the 25th, that said to apply for EIDL, but before you take any money to reach out to us.  We will have more clarity in the next 15 days.

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