How small businesses can apply for free money from CARES act.

How small businesses can apply for free money from CARES act.

I’ve been studying the CARES act in the last week since it was signed into law. I wanted to link to a few resources for small businesses impacted by the Coronavirus. There are two separate loans available, the economic injury disaster loan and the payroll protection program.

Economic Injury Disaster Loan

If your business has been severely impacted and you are in need of immediate money you can apply for the economic injury disaster loan here – remember that false information provided under self-certification under penalty of perjury pursuant to 28 U.S.C. 1746 for verification purposes.

I have heard from a couple of sources that if you apply for this EIDL loan then that amount is not forgivable and will have to be subtracted from the PPP loan below. If you can you may want to hold off on applying for this EIDL.

Payroll Protection Program

The payroll protection program loan if used properly is entirely forgiven by the government. They can be used to cover:

  • Payroll including benefits
  • Mortgage interest (incurred before February 15th, 2020)
  • Rent (agreement must have been in place prior to February 15th, 2020)
  • Utilities (agreement must have been in place prior to February 15th, 2020)

Important notes

  • Loans can be used to cover expenses over the 8 weeks following the day the loan was made. You must maintain employee and compensation levels.
  • Payroll costs are capped at $100,000 annualized for each employee.
  • Payments are to be deferred for 6 months
    • Interest is still accrued at 1%
    • The loan is due in 2 years
    • No pre-payment penalties
  • No collateral is necessary for these loans
  • No personal guarantees are required for these loans
  • All of the following can apply for a loan if you have less than 500 employees
    • Non-profits
    • Veterans organizations
    • Tribal
    • Sole proprietors
    • Self-employed
    • Independent contractors
  • Certain businesses with more than 500 employees can apply. They are defined here this includes but may not be limited to hotel, food, and franchising industries.
  • The loan size can be for 2.5x your average monthly salary from 2019. This is however capped at $10 million
  • For sole-proprietors or independent contractors, it is wages, commissions, income, or net earnings from self-employment but is capped at $100,000 per employee.
  • Interest rate is 0.5% fixed

In order for loan to be forgiven

  • You can use your loan for payroll costs, mortgage interest, rent, and utilities for the 8 weeks following the loan date.
  • If you do not maintain your staff and payroll you will also not be forgiven that money.
    • You must maintain employee headcount
    • You cannot reduce salaries and wages by more than 25% for any employee making less than $100,000
    • If you made any changes to full-time employment or salary levels you have until June 30th to restore them.

Applying for the loan

Starting April 3rd small businesses and sole proprietorships can apply through existing SBA lenders. I’ve put together a list of the largest SBA lenders here –

On April 10th independent contractors and self-employed can apply.

Your lender will require this application which can be downloaded by clicking here. They will also require additional documentation specific to the lender you choose. This application will be open until June 30th.

You must certify the following are true

  • Current economic uncertainty makes the loan necessary to support your ongoing operations.
  • The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.
  • You have not and will not receive another loan under this program.
  • You will provide to the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan.
  • Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
  • All the information you provided in your application and in all supporting documents and forms is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law.
  • You acknowledge that the lender will calculate the eligible loan amount using the tax documents you submitted. You affirm that the tax documents are identical to those you submitted to the IRS. And you also understand, acknowledge, and agree that the lender can share the tax information with the SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.

Applying for forgiveness

You must request through your lender that is servicing the loan once it is established. You must provide documentation to verify the requirements above. You must also certify that your statements are true. The lender will have 60 days to decide on forgiveness based on this criteria.