SBA Loan Programs Under the CARES Act
The CARES Act provides eligible businesses with various financing opportunities through the Small Business Administration (SBA) to support those businesses through the economic hardships caused by or related to COVID-19. Below is a brief explanation of the various financing opportunities that businesses may be eligible for.
Loan Programs
Businesses are permitted to participate in two major SBA loan programs, the Economic Injury Disaster Loan Program and the newly enacted Paycheck Protection Program made available through the CARES Act, both of which are summarized below. Eligible small businesses can qualify for both loan programs. However, businesses are not permitted to use both loans to cover the same expenses. *The SBA issued an interim final rule on April 2nd, 2020, further clarifying the Paycheck Protection Program (“PPP”). Text appearing in red is additional information provided in the interim rule.
Economic Injury Disaster Loan Program (EIDL) | Paycheck Protection Program (§7(A) Program) (PPP) |
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OverviewEIDL, which is typically available in select states and counties, is now available in every state and county and offers eligible businesses lower interest rates to mitigate substantial economic injury. |
OverviewPPP gives eligible businesses the funds to pay most employees their current compensation and benefits for up to 2 ½ months using an SBA §7(a) loan. There is potential full loan forgiveness. Applications will be accepted through June 30, 2020, or until the funds made available for the PPP are exhausted. Loans will be made available on a first come, first serve basis. |
ProviderAvailable directly through the SBA. |
ProviderAvailable through participating SBA lenders. |
TERM AND RATES OF REMAINING LOAN BALANCEThe SBA determines the term of the loan on a case-by-case basis, with a maximum term of thirty (30) years. The interest rate for qualifying small businesses is 3.75%, and the interest rate for qualifying non-profits is 2.75%. Interest rates are not to exceed 4%. Monthly payment deferrals are available for up to one (1) year. No prepayment penalties apply. Origination fees are waived. SBA will waive any personal guarantee on advances below $200,000 for loans made prior to December 31, 2020. |
TERM AND RATES OF REMAINING LOAN BALANCE AFTER LOAN FORGIVENESSThe interest rate is one (1) percent with a two (2) year maturity date. The principal and interest is deferred for six (6) months. Interest will accrue on the loan during the deferral period. No prepayment penalties apply. Origination fees waived. These loans are unsecured and do not require personal guarantees. |
ELIGIBLE BUSINESSESAny small business, small agricultural cooperative, and most non-profits in the declared-disaster area are eligible. A small business typically has $750,000 to $36.5 million in total revenue and has anywhere from 500 to 1,500 employees, depending on the industry. Eligibility is determined based on the Size Standards Tool provided by the SBA. |
ELIGIBLE BUSINESSES
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COVERED PERIODNo determination regarding duration of availability. |
COVERED PERIODFebruary 15, 2020 – December 31, 2020 |
MAXIMUM LOAN AMOUNTThe SBA office determines the amount of the loan on a case-by-case basis. The SBA’s determination is based on the gross profits information provided on the application. The maximum loan amount available is $2,000,000.00. |
Maximum Loan AmountMaximum loan amount available is the lesser of:
** Alternative calculation applies to (i) companies that were not in business during period beginning on February 15, 2019 and ending on June 30, 2019 and (ii) seasonal employers. |
refinancing opportunities for EXISTING eidl loansEIDL loans made after January 31, 2020 may be refinanced in the covered period through the PPP. |
REFINANCING OPPORTUNITIES FOR EXISTING EIDL LOANSEIDL loans made after January 31, 2020 may be refinanced in the covered period through the PPP. |
ALLOWABLE USES OF FUNDSPayment of fixed debts, payroll, employee benefits, accounts payable, and other bills that otherwise could not be paid due to economic hardships caused by or related to COVID-19. |
ALLOWABLE USES OF FUNDS
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POTENTIAL LOAN FORGIVENESSNo loan forgiveness is available. |
POTENTIAL LOAN FORGIVENESSBorrowers are eligible for forgiveness of the full amount of the loan and accrued interest for costs incurred and payments made during the 8-week period after the origination date of the PPP loan for:
*seventy-five (75) percent of the loan forgiveness amount must be attributed to payroll costs. |
Relief for Existing SBA Loans
The CARES Act directs the SBA to subsidize existing loans made through the § SBA 7(a), 504, and Microloan programs up to an estimated amount of $17 billion. The features to this subsidizing program are as follows:
- The SBA will pay the principal, interest, and any related fees that are owed on an existing covered loan for a six (6) month period, starting on the next payment due date;
- If a covered existing loan is already on deferment, the SBA will begin making these payments with the first payment after the deferral; and
- SBA loans that are made under § SBA 7(a), 504, and Microloan programs within the next six (6) months will also receive a full six (6) months of loan payments by the SBA.
Emergency Grants- EIDL Program
The CARES Act established a $10 million EIDL Emergency Grant program. Under this new program, entities that apply for the EIDL program (further explained in Section I) may request up to a $10,000 advance on the loan. SBA is required to distribute the emergency grant to the entity within 3 days of the entity’s request. If the entity is ultimately denied for the EIDL program, the $10,000 grant does not need to be repaid. If approved for the EIDL program, the emergency funds are treated as an advance on the EIDL loan and included in the EIDL proceeds that need to be repaid. Borrowing entities may refinance the EIDL loan, including the emergency funds, to a loan under PPP that may be eligible for loan forgiveness.
The emergency grant may only be used for the following expenses:
- paid sick leave to employees,
- maintaining payroll,
- increased cost to obtain materials,
- rent or mortgage payments, and
- repaying any obligation that cannot be met due to revenue losses.
The Emergency Grant program terminates on December 31, 2020.