Two weeks ago, the government fast-tracked a program called SBA Disaster Relief Economic Fund for businesses to get working capital. The specific loan is being called the Economic Injury Disaster Loan or EIDL. Unfortunately, requests have overwhelmed the SBA, and the website and servers have prevented much from happening. The latest development is from Friday, March 27th, when Trump signed the Care Act.
What We Know About the Care Act:
The primary program that is important to us is the PPP (Payroll Protraction Program) loan/grant. See below for bullet points on the information we’ve been able to gather.
- Banks will be taking the applications and distributing funds
- You cannot accept both programs (EIDL & PPP)
- The PPP loan turns into a forgivable grant if you use the funds for payroll, health insurance, utilities, business rent/mortgage, and debt payments incurred prior to 2/15/2020
- Interest rates up to 4% w/10-year loan term
- 1 year of payments deferred
- No personal guarantee required and it is unsecured (No collateral needed)
- You can apply for multiple businesses if you have multiple businesses
- They base the loan amount on payroll either from 2/15/19 – 6/30/19 or 1/1/20 – 2/29/20. At this time we are unsure which will apply. You get 2.5 X’s your one month average during that time.
- If you’ve laid people off or cut back hours, you’re still eligible for this, but they will adjust the forgivable amount. Formular apparently has been released, but we have yet to be able to verify it.
- We have also been told employees making over $100k will not be factored into the 2.5 X payroll. This is unconfirmed, but we believe this to be true
If you have an SBA 7(a) loan unrelated to COVID19, you can still apply for the PPP loan/grant. However, if you take out a loan for the EIDL program, you cannot qualify for the PPP assistance. If you use the funds for the reasons listed above, you can have the loan switched to a grant and the debt will be forgiven. More on this to follow.
What About Timing?
This is still up in the air as banks and lenders have yet to even figure out all the details as of 10:45 EST. We estimate loans being processed by April 10th based on the feedback we’re getting. This should put funds in your bank by the April 15th range if all goes as advertised. Keep in mind, there will be a lot of businesses inquiring about this and that will slow the process down. It’s supposed to be first come first serve, but the government has requested a few types of businesses be prioritized.
What Do You Do Now?
We suggest that you proactively find a lender who plans to participate in the Payroll Protection Program. Quick-relief could happen in the way of a $10k bridge loan that is expected to be easy to get with the intent to hold you over until the PPP loan is funded. I don’t have a lot of details on this yet but plan to soon. See the Care Act Bill here: https://www.congress.