Obtaining Small Business Loans Under the CARES Act

If you own a small business that is suffering from the economic downturn caused by the COVID-19 pandemic, you may qualify for financial assistance through the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This federal law, passed in March 2020, provides $376 billion in pandemic relief money for American workers and small businesses — those with fewer than 500 employees. Nonprofit organizations also qualify.

The law provides for two types of loans: Paycheck Protection Program (PPP) Loans to continue paying their workers and Economic Injury Disaster Loans (EIDL) to pay rent, utility bills and other operational costs. In addition, EIDL applicants are eligible for a $10,000 grant for use as working capital.

The application deadline for PPP loans has been extended to August 8, while EIDL applications may be submitted through December.

Here are important things to know about the PPP and EIDL programs:

  • Independent contractors can apply — PPP loans are available to sole proprietors, independent contractors and workers who are self-employed. However, these applicants must satisfy eligibility requirements, such as proof of filing payroll tax.
  • Generous coverage — PPP loans will cover up to 2.5 times a business’s average monthly payroll.
  • Restriction to SBA-approved lenders — PPP loans up to $10 million are available only through lenders approved by the Small Business Administration (SBA). You can find an SBA-approved lender on the SBA website.
  • Loan forgiveness — After eight weeks have passed since the loan was issued, the lender will review your expenses and forgive the portion of the loan used to pay for them. Any amount not forgiven becomes a two- to five year loan with a 1 percent interest rate.
  • EIDL funds capped at $2 million per business — A small business can get up to $2 million in EIDL money. Unlike PPP loans, which are arranged through third party lenders, EIDL loans are administered solely by the SBA.
  • Low interest rates and deferred payments — Small businesses pay a 3.75 percent interest rate for EIDL loans, while non-profits pay 2.75 percent. Repayment is automatically deferred for one year, though interest still accrues over the first year. Payment on PPP loans is deferred for six months but interest accrues during deferment.
  • No double dipping — Businesses can apply for a PPP loan and an EIDL loan simultaneously but they can’t dip into both loans for the same expense. A business that uses PPP money can’t use EIDL funds to supplement its payroll.

Although the rules governing these loans are still in flux, the SBA’s goal is to make as much money as possible freely available to small businesses in need. Notably, the SBA has waived the “credit elsewhere test,” which usually requires loan applicants to show that they have pursued other credit resources without success. Also waived is any requirement to secure the loan with real estate or other collateral.

Salas Law Firm advises small business owners in the greater Fort Lauderdale area. For assistance with PPP or EIDL loans or on any matter related to the CARES Act, contact us online to schedule a consultation.

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John Salas

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