Comparing The Various COVID-19 Relief Loan Programs
Tips to understand the best relief initiative for your business
Posted on 05-19-2020, Read Time: Min
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As the coronavirus (COVID-19) pandemic has impacted businesses around the U.S., several different federal loan programs have been introduced or funded for the purpose of relieving these sudden, far-reaching financial challenges. While beneficial to many struggling businesses at this time, it can be difficult to understand the nuances of each program and which loan best suits each business in the long term. The current COVID-19 relief loan programs include:
The Paycheck Protection Program (PPP): Part of the CARES Act, the PPP provides significant financial incentives for small businesses to hold on to current employees and to bring back employees who have been laid off or furloughed, even before their business is fully back up to speed.
- Small businesses with 500 or fewer employees—including nonprofits, veterans’ organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors — are eligible for PPP loans.
- In addition, businesses with more than 500 employees in certain industries may be eligible if they meet the SBA’s size standards for those industries.
- PPP loans can be fully forgiven if used for payroll costs, interest on mortgages, rent, and utilities and if the employer maintains (or quickly rehires) employees and maintains salary levels. However, forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.
- Small businesses can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Fintech lending providers, such as Biz2Credit, Fundera, and Lendio, are also now approved to provide PPP loans. All loans will have the same terms regardless of lender or borrower.
- Business owners should consult with their local lenders as to whether they are participating. A list of participating lenders as well as additional information and full terms can be found at www.sba.gov.
The Small Business Administration’s (SBA) Economic Injury Disaster Loan (EIDL) Program: The SBA’s EIDL program offers low-interest federal disaster loans of up to $2 million for working capital to small businesses (with 500 or fewer employees) suffering substantial economic injury as a result of COVID-19.
- The interest rate on these loans is 3.75 percent for businesses without credit available elsewhere. The interest rate for non-profits is 2.75 percent.
- Loans may be used to pay fixed debts, payroll, accounts payable, and other bills that can’t be paid because of COVID-19 impact.
- This program offers long-term repayments in order to keep payments affordable, up to a maximum of 30 years, with the option to defer payments in the first year.
- For EIDL loans made in response to COVID-19 before December 31, 2020, the SBA is waiving any personal guarantee on advances and loans below $200,000, the requirement that an applicant needs to have been in business for the 1-year period before the disaster, and the credit elsewhere requirement.
- Importantly, this initiative provides an emergency advance of up to $10,000, which does not need to be repaid, to small businesses after they apply for an SBA EIDL.
To prepare their applications for these programs, including the customized package of reports and necessary documentation, business owners should work with their payroll provider and other trusted business advisors who already have access to the relevant business information. Additionally, it is important to note that participation in these programs may preclude eligibility for other programs, so businesses should again consult with their accountant or other trusted financial advisor to understand the best relief initiative for their business.
Note: The information contained within is not tax or legal advice. These issues are complex and applicability depends on individual circumstances. Businesses should consult tax or legal counsel before taking action on any of the items identified above.
Author Bio
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Mike Trabold is the Director of Compliance Risk for Paychex, Inc. Visit www.paychex.com Connect Mike Trabold Follow @Paychex |
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