Key Aspects of the CARES Act Provisions Authorizing Small Business Loans
Small business owners are necessarily prepared for various types of challenges, but what do you do when the government orders you to close for an indefinite amount of time? Unfortunately, the COVID-19 pandemic has put millions in this very difficult position. Even worse, it is still unclear in many places when authorities will allow businesses to reopen their doors, and what the U.S. economic landscape will look like when they do.
To address these concerns, the federal government has passed legislation designed in part to support small businesses throughout this crisis. Understandably, reaction has been overwhelming, but the different types of relief can be confusing, and a mistake that leads to a delay could be very costly. If you’re looking for assistance offered in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, here’s what you should know:
- Paycheck Protection Program — Much of the media coverage has been focused on the Paycheck Protection Program (PPP), which allows small businesses to apply through their local bank for up to $10 million or 2.5 times their average monthly payroll — whichever amount is smaller. If the funds received from the PPP loan are spent within eight weeks on payroll, mortgage payments or a few other necessary expenses that are outlined in the text of the law, the loan amount is forgiven, making this more of a grant than an actual loan.
- Economic Injury Disaster Loans — This measure simplifies and expands upon the Economic Injury Disaster Loan (EIDL) program. Run by the Small Business Administration, the EIDL approval process has been streamlined and businesses can now ask for up to $10,000 as an advance on the loan. These amounts do not have to be repaid and can be granted regardless of whether the underlying loan is ever issued. Moreover, the collateral requirements that were previously in place for larger loans have been eased or eliminated.
- Possible future modifications — Even in the first few days, the popularity of the programs caused delays and fears of depletion. Congress is expected to authorize more funds to back these loans, but small businesses might need tenacity, patience and assistance from an experienced adviser to keep up with the changes and secure the funding they need.
If you’re wondering which loan to pick, you can actually apply for both. Just remember that each loan has its own requirements for forgiveness. If you have difficulty applying for, or getting approved for, one of these loans, or if you have questions about whether your lender or the SBA is complying with the text of the law, consult a small business attorney on whether a suitable remedy is available.