There is a slew of information circulating online about the new federal relief programs and the best course of action for business owners. Below is a brief overview of the primary federal programs available to impacted business, along with our assessment of the options as they appear today.
Federal Relief Programs:
There are three primary relief options: (1) Forgivable loans through the Paycheck Protection Program (“PPP”); (2) Economic Injury Disaster Loans (“EIDL”); and (3) Emergency cash advances, up to $10,000, through the EIDL program.
1. PPP Loans
The Paycheck Protection Program is an entirely new program created under the CARES Act, which appears to offer the most generous relief.
Most or all of the loan amount will be forgiven if the funds are used for approved expenses, such as payroll, rent, utilities, etc., for a two-month period after the loan issues, so long as you maintain your current payroll or re-hire any recently laid off workers by June 30, 2020.
Loans are issued through participating banks.
Participating banks are awaiting instruction from the SBA.
2. EIDL Loans
The Economic Injury Disaster Loan program was available prior to the Coronavirus, but it was expanded and modified by CARES.
EIDL loans must be repaid. Interest rates are relatively low, and the terms are generally favorable.
3. EIDL Emergency Advances
The SBA is offering emergency forgivable advances of up to $10,000 for small businesses.
These advances will, theoretically, be distributed within three days of applying.
Under most circumstances, these advances don’t have to be repaid.
If you receive an emergency advance, any amount you later receive under the PPP program will be reduced by this amount.
*** Tax Credit Option: The new relief law offers an additional option, where businesses that have had a 50% drop in gross receipts compared to the same period last year may qualify for a payroll tax credit worth up to $10,000 per employee, as long as they continue paying their employees’ wages and/or benefits. However, if you use this tax credit, you cannot take advantage of the PPP program.
The Big Picture:
The PPP program appears to offer the most relief, as most or all of the loan can be forgiven. To be forgiven, the loan funds must be used for designated purposes, such as payroll, rent, utilities, etc. for a two-month period after the loan issues. But if you follow the rules carefully, this loan essentially becomes a grant. PPP loans are not yet available, but hopefully banks will begin taking applications later this week.
If your business has been affected by the crisis, you should apply for the PPP loan as soon as it comes online. Once received, keep careful track of your expenditures and make sure the funds are used for permissible purposes. If you have already been forced to lay off employees, you can re-hire them once you receive these funds. If you do, the federal government will subsidize their wages for a two-month period (within certain limits).
EIDL loans are another source of emergency funding, but unlike PPP loans, most of the loan amount must be repaid. Think of this like an ordinary commercial loan for operating expenses, but somewhat easier to obtain and with potentially better interest rates. This program is available now. If you already applied for an EIDL loan before the new PPP program became available, the new law allows you to refinance it into a PPP forgivable loan once that program comes online.
The EIDL emergency cash advance is the fastest source of federal relief. You can apply online, and, according to the SBA, you should receive an advance of up to $10,000 within 3 days. In most cases, these funds will not have to be repaid. At the moment, you will need to apply for an EIDL loan and request an advance. In most cases, you should receive this advance even if your loan request is later denied.
Finally, there are numerous state and local relief options available, including the Illinois Small Business Covid-19 Relief Program and the Chicago Small Business Resiliency Fund, as well as many industry specific programs. Right now, there is no indication that receiving state or local aid would negatively impact your qualification for Federal aid programs, but until the SBA releases the details of the PPP program, there is always some risk that there may be an unexpected, negative impact. If you can afford to wait, we recommend waiting to apply for all other aid until you have applied for the PPP loan program, which currently offers the most generous relief.
We hope that you and your family are staying safe and healthy. If you have any questions, please feel free to contact us.
John D. Galarnyk, Esq.
Andrew J. Cunniff, Esq.
John A. Romanucci, Esq.