As a result of the legislation related to COVID-19, there are two available loan programs. This is not a comprehensive review and small businesses should check the SBA.gov website for more information on the Economic Injury Disaster Loan (EIDL) program or their local SBA lender for more information on the Paycheck Protection Program (PPP). You may have already noticed an uptick in requests from your business clients to assist with completing the loan applications. The small business can apply for both loans but can only receive funds from one of the programs. If they are approved for both loans they will need to select the program that best fits their situation.
The two loan programs available for small businesses affected by the coronavirus: a) the first one came out in the SBA Disaster Loan Program and is known as the Economic Injury Disaster Loan (EIDL) Program and, b) the Paycheck Protection Program (PPP) came out in the CARES Act. The CARES Act also expanded some of the benefits available in the EIDL program.
The CARES Act temporarily expands eligibility for EIDL by providing for an emergency grant award of a $10,000 loan to small businesses and private non-profits harmed by COVID-19. To access the advance, you must first apply for an EIDL and then request the advance. The advance may be used for any business purpose such as payroll, production costs, rent, utilities, other debt or mortgage. The advance loan will not have to be repaid even if the application for the EIDL is not approved.
The EIDL application is through the U.S. Small Business Administration. When applying, you can request the emergency advance of $10,000. The SBA will provide the advance within 3 days of receiving your application (which is what we are being told).
The PPP is available to businesses and tax-exempt organizations with fewer than 500 employees. Application is made through any lending institution that is approved to participate in the SBA 7(a) lending program.
In evaluating the eligibility of the borrower, the lender must confirm that the business was operating as of February 15, 2020 and had either employees or independent contractors receiving payment.
The PPP loans can be used for:
Payroll costs (excludes an employee whose compensation is in excess of $100,000)
Group health care benefits
Interest paid on prior debt incurred
What information will the borrower need?
Contact information for yourself and your business
Business location and history (date established, revenues)
Personal financial statement
Monthly historical sales figures
Estimated amount of loss
Estimated revenue and expenses during the disaster period
List of liabilities (loans, mortgages, accounts payable)
Most recent business tax return
The loan amount is generally 2. 5 times the average monthly costs over the twelve months prior to receiving the loan
If the loan is used for approved expenses then the loan can be forgiven after two months (however, this benefit is not available if you have used the EIDL emergency grant award of $10,000)
The table below compares the terms of the EIDL and PPP loans (obtained from KrostCPAS)
In addition to all of the information provided here, the U.S. Chamber of Commerce has provided a flyer that may be helpful in explaining the program to your clients.
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