The next round of Paycheck Protection Program small business loans is set to open up this week or early next week, which means businesses that did not receive funding from the original $349 billion PPP funds through the Coronavirus Aid, Relief and Economic Security (CARES) Act should be ready to submit their applications.
The Senate approved a $484 billion interim coronavirus relief measure that would provide $310 billion for the Small Business Administration’s (SBA) now-exhausted Paycheck Protection Program (PPP), $60 billion for disaster loans through the Economic Injury Disaster Loan (EIDL) program, and an additional $100 billion for the Department of Health and Human Services (HHS), which includes $75 billion for health care provider relief and $25 billion to ramp up coronavirus testing.
By the time you are reading this, the House may have approved the measure. Below is a snapshot of the provisions most relevant to you as we know them to be at the time of this writing. As with all things coronavirus-related, details are changing daily, if not hourly, so we will be sure to provide updated information as we receive it:
Paycheck Protection Program
The additional $310 billion authorized for the Small Business Administration’s Paycheck Protection Program includes $60 billion dedicated to underserved communities such as minority and rural businesses. Of that $60 billion, $30 billion is set aside for banks and credit unions with assets between $10 billion and $50 billion. The other $30 billion is reserved for community banks, credit unions and “community financial institutions” with assets of less than $10 billion. The bill defines community financial institutions as “minority depository institutions, certified development companies, microloan intermediaries, and state or federal credit unions.”
The PPP was originally funded with $349 billion in the $2.2 trillion CARES Act that the President signed March 27. But within days of the program’s opening on April 3, the program had maxed out its funding after approving nearly 1.7 million loans.
The program allows businesses with 500 or fewer employees (with an exception allowing more than 500 employees for certain industries) to secure loans of up to two months of their average monthly payroll costs, plus 25% of that amount, to a maximum of $10 million. The loans are forgiven if the company maintains its employee and compensation levels, and if the proceeds are used to cover payroll costs and most mortgage interest, rent and utility costs. No more than 25% of the loan may be used for non-payroll expenses.
Economic Injury Disaster Loan program
The bill authorizes an additional $60 billion for the Small Business Administration’s Economic Injury Disaster Loan (EIDL) program, $10 billion of which is reserved for the EIDL Advance program, which provides $10,000 grants that don’t have to be repaid for businesses hurt by the pandemic. The bill also allows agricultural enterprises (as defined by section 18(b) of the Small Business Act) with up to 500 employees to receive EIDL grants and loans.
The SBA’s EIDL, which is usually intended for victims of disasters like tornadoes and wildfires, was made available on March 12 to businesses hurt by the coronavirus pandemic. Under the program, businesses with fewer than 500 employees (with exceptions for certain larger companies) that were operating as of January 31, 2020 — including cooperatives, sole proprietors and private nonprofits — can apply for a working capital loan of up to $2 million, at a rate of 3.75% for businesses and 2.75% for nonprofits, with a term of up to 30 years.
For loans related to the pandemic, payments are deferred for one year, approval can be based on a credit score only, and borrowers do not have to prove they cannot get credit elsewhere. In addition, under the EIDL Advance program, applicants can get a $10,000 emergency grant within three days of applying, which does not have to be repaid. The CARES Act funded the EIDL Advance program with $10 billion, but it too was quickly flooded with applications, overwhelming the SBA application system resulting in applicants waiting for weeks for loan approvals.
Health care provider relief
The CARES-2 bill authorizes an additional $75 billion to the Public Health and Social Services Emergency Fund administered by HHS, to be distributed to hospitals and health care providers for related expenses or lost revenue attributable to the coronavirus. The bill language mirrors the language in the CARES Act and supplements the $100 billion provided through CARES-1, of which $30 billion has already been allocated based on providers’ share of 2019 Medicare fee-for-service (FFS) billing. The Administration has indicated they will direct some of the remaining $70 billion in CARES Act funding to providers in areas particularly impacted by the COVID-19 outbreak, rural providers, providers of services with lower shares of Medicare reimbursement or who predominantly serve the Medicaid population, and providers requesting reimbursement for the treatment of uninsured Americans.
Zachary Collins, CPA, is a Senior on the Business and Tax Advisory Group with Antares Group, Inc. He can be reached at email@example.com.
This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.