The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law on the evening of Friday, March 27th. The CARES Act is designed to boost the economy by providing over $2 trillion in relief through multiple avenues including individual rebates, increased unemployment benefits, and tax breaks for businesses. For our summary of the CARES Act for individuals, please click here.
Below are a few features of The CARES Act that may impact your small business.
Economic Injury Disaster Loan Emergency Advance
This loan advance will provide up to $10,000 of economic relief to business that are currently experiencing a temporary loss of revenue due to the COVID-19 pandemic. This loan advance will not have to be repaid.
Economic Injury Disaster Loan (EIDL)
The Small Business Administration (SBA) offers loans up to $2 million in assistance to overcome the temporary loss of revenue due to COVID-19. These loans may be used to pay fixed debts, payroll, accounts payable and other bills that cannot be paid because of the impact of the virus. Currently, the interest rate for EIDLs is 3.75% for small businesses and offers several payment terms up to 30 years.
Relief for Existing SBA Loans
The SBA will cover all loan payments for existing SBA borrowers, including principal, interest, and fees, for six months. This relief will also be available to new borrowers who take out an SBA loan within six months after March 27, 2020.
Paycheck Protection Program (PPP) Loans
The PPP is an emergency lending facility, administered by the SBA, to provide small business loans through Banks on favorable terms to borrowers impacted by the current state of economic uncertainty. Providing $349 billion in new lending capacity, it accounts for much of the small business assistance provided in the CARES Act. The PPP aims to accomplish two fundamental goals:
- Help small businesses cover their near-term operating expenses during the worst of the crisis, and
- Provide a strong incentive for employers to retain their employees.
The amount of the loan is dependent upon the business’ average monthly payroll, up to $10 million. The loan is forgivable if you can verify and document covered expenses during the timeframe given.
The CARES Act is a sweeping piece of legislation. While a lot of the specifics will take months to clarify with input from various federal agencies, almost every American business will be impacted in some way by the items noted above. Please consult with the SBA or your banking professional for more details and requirements for all of the lending arrangements afforded in the CARES Act.