The CARES Act offers unprecedented levels of aid for firms with less than 500 employees. While the Small Business Administration typically extends about $35 billion in loans each year, it is extending $349 billion in the paycheck protection program alone.
Unfortunately, the demand may be even more profound. Writing in the March 30 Wall Street Journal, Amit Seru and Luigi Zingales note that, according to the most recent (2017) data, “the total expenditure in payroll, interest expenses, and rents of U.S. small firms amounts to $258 billion a month.”
While the paycheck protection program loans are being administered by local banks, the sheer volume of administrative work involved in operationalizing the program could place enormous stress upon the agency.
The combination of limited funds and taxed organizational capabilities argues for prompt action. In that spirit, we’ve provided summaries of relevant provisions of the act, along with guidance on anticipated best practices, and clear actions you can take. Of course, because these bills have only recently passed, they are subject to administrative interpretation.
Small business owners will want to consider these programs:
- Paycheck Protection Program – This $349 billion effort is the cornerstone of CARES Act relief.
- Who Should Apply: Owners of small firms seeking to keep their workers on the payroll.
- What’s Available: Eligible recipients may qualify for a forgivable loan up to $10 million (determined by 8 weeks of prior average payroll plus an additional 25% of that amount for certain other operating expenses).
- Who Administers the Loans: Loans will be made by private financial institutions and backed fully by the U.S. government.
- Special Requirements: If you maintain your workforce, SBA will forgive the portion of the loan proceeds that are used to cover the first eight weeks of payroll and certain other expenses following loan origination. In other words, the government will provide two months of expenses if your number of full-time equivalent employees remains constant and payroll is maintained at a level equal to at least 75% of what it was previously. If you’ve already implemented layoffs, you need to hire people back by June 30.
- Action: Contact your business lender. SBA begins taking applications as early as Friday April 3.
- Economic Injury Disaster Loans and Loan Advance – Originally designed as relief for small business in disaster areas, this program has been repurposed now that the entire country is a disaster area.
- Who Should Apply: Small business owners in all U.S. states, Washington D.C., and territories are eligible to apply.
- What’s Available: low-interest rate direct loans of up to $2 million to help firms overcome temporary revenue loss. Includes a $10,000 advance payment (i.e., intended to be a quickly disbursed grant) that, with some qualifications, does not need to be repaid even if the loan request is denied.
- Special Requirements: If you applied before the law passed, and want to get the cash advance, you need to apply again. If you’re also taking out a Paycheck Protection Program loan, these loans cannot be used for the same purposes and the $10,0000 advance could be counted against forgiveness.
- Action: Apply here: https://www.sba.gov/page/disaster-loan-applications#section-header-0
- SBA Debt Relief – Special COVID-19 inspired relief is applied to SBA’s flagship lending program.
- Who Should Apply: Existing SBA 7(a) borrowers or new 7(a) borrowers who take out loans prior to September 27, 2020.
- What’s Available: SBA will pay scheduled payment and interest for six months.
- Action: Contact a qualified SBA lender.
- SBA Express Bridge Loans – These provide additional, fast-tracked help.
- Who Should Apply: Borrowers who have a business relationship with an SBA Express Lender
- What’s Available: Access up to $25,000 with less paperwork. Can be used as a term loans or to bridge the gap while applying for a direct SBA Economic Injury Disaster loan.
- Action: Contact your SBA lender.
These are the main relief initiatives administered by the Small Business Administration. Substantial initiatives are also being administered by the Treasury Department and other entities.
For more information, contact:
Managing Director, Public Sector
+1 703 637 2770