Business Owners – this is for you!
Managing through the crisis – here are the latest updates.
Economic Injury Disaster Loan (EIDL):
This program has been available for over a week, and you apply directly on the SBA website. The loans are up to $2 million, with the first $10,000 classified as a grant that you do not have to pay back. On Friday, March 27, 2020, President Trump signed into law the CARES Act, which provides additional assistance for small business owners, including the opportunity to receive up to a $10,000 advance on an Economic Injury Disaster Loan (EIDL) for emergency capital.
The SBA is updating their system to implement this provision so small businesses can request an EIDL advance when they apply for the loan. This update will be available in the coming days. In the interim period, you can still apply for a full Economic Injury Disaster Loan but will need to reapply for the advance when the system is updated with a streamlined application. Once updated, the advance will be included in your EIDL application process.
The EIDL loans can be used for fixed debts, payroll, accounts payable and other bills that could have been paid had this crisis not occurred. The interest rate is 3.75% with payback terms up to 30 years.
Loan amounts over $25,000 require collateral, however, SBA will not decline a loan for lack of collateral. Borrowers will need to pledge what is available. Payments are deferred for a year.
There is an updated application process which includes uploading an application (Form 5 or 5C if you are a sole proprietor) and EIDL Supporting Information (Form P-019). Once your loan has been assigned to a disaster assistance loan officer, they may request additional information.
The SBA site is still struggling to keep up with demand. You may need to apply late evening or early morning. Also use the Edge browser.
Paycheck Protection Program (included in the CARES Act):
This is an expansion of the SBA 7(a) loan program, and you will apply through your bank. The maximum loan amount is 250 percent of the employer’s average monthly payroll costs. Borrowers are eligible for loan forgiveness equivalent to the sum spent on covered expenses during the eight-week period after the loan is originated. The covered expenses include payroll, rent, utilities and mortgage interest obligations. To qualify for forgiveness, employers must maintain their pre-crisis level of full-time equivalent employees or else face a reduction in forgiveness proportional to the reduction in headcount.
The payback period is 10 years will an interest rate not greater than 4%. Loan payments can be deferred between 6 months and one year.
Borrower requirements:
- Good faith certification that the loan is necessary because of economic uncertainty caused by COVID-19 and will be applied to maintain payroll and make required payments.
- Borrower must also certify that they are not receiving this assistance and duplicative funds for the same uses from another SBA program.
- No collateral or personal guarantee is required.
Lenders are encouraged to prioritize entities in underserved and rural markets, veterans and members of the military community, small business concerns owned by socially and economically disadvantaged individuals, women, and businesses in operation for less than 2 years.
The new bill was just passed on March 27th and we are still awaiting application details and answers to other questions. SBA has 15 days to give more provisions and guidance.
We believe the initial $349 billion allocated for small business relief will not be enough and Congress should immediately begin preparing for an extension of the program. The Mettise Group will continue to post updates at least daily to bring you the most current information.
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