The CARES Law: Which Small Business Loan is Right for Your Business? | Balch & Bingham srl

Congress passed the Coronavirus Aid, Relief, and Economic Security Act – (the “CARES Act.”) Was enacted on March 27, 2020. Among (many) other things, it provides two types of loans that are attractive to small businesses. businesses, which are defined as having 500 or fewer employees. . This summary, which was updated following the release of the SBA Interim Final Rule on April 3, 2020, provides a comparative overview of each type of loan and describes how to apply. This information is not exhaustive but can provide a roadmap for your business in these uncertain times.



It’s a Economic damage Catastrophe Loa (SBA 7 (b))

It’s a Paycheque Protection Program Loan (“PPP Loan”) (SBA 7 (a))

Period covered for significant economic damage: from January 31, 2020 to December 31, 2020

Period covered for loan: from February 15, 2020 to June 30, 2020.

The loan proceeds can be used for payroll, working capital, accounts payable, fixed debts, other bills that cannot be paid due to the impact of COVID-19

Loan proceeds must be used for salary costs (including employee salaries *, hourly wages, cash tips, paid sick or sick leave, and group health insurance premiums), and existing interest payments on mortgages , and rent payments, leases and public service agreements. At least 75% of the loan proceeds must be used for labor costs.

* up to an annual rate of pay of $ 100,000.00

The loan proceeds cannot be used for repair physical damage, refinance debt incurred before COVID-19, payments on loans held by a federal agency or a small investment firm licensed under the Small Business Investment Act, or generally remit dividends or disbursements to owners, partners, managers or shareholders

The loan proceeds cannot be used for payments to independent contractors; prepayment of interest on mortgages or other debt securities, payment of principal on mortgages or other debt securities, other business-related expenses not listed above (example – inventory) .

Maximum loan amount is $ 2,000,000.00

Maximum loan amount is less than (1) $ 10,000,000.00 or (2) 250% of average monthly salary costs.

terms: up to 30 years, interest rate 3.75%, payments are only due 12 months after receipt and interest only accrues 12 months after receipt, waives personal guarantee for EIDL below 200,000 .00 $, collateral is required for EIDLs greater than $ 25,000.00 (however, the EIDL will not be refused simply because collateral is not available).

terms: Up to 102 years, 1% interest rate capped at 4%, non-recourse,, no personal collateral or collateral required., Non-recourse, but if loan proceeds are used for unauthorized purposes, SBA may exercise recourse against the shareholder, members or partners for such unauthorized use.

EIDLs are not forgivable and must be repaid, but at the time of application, a business can apply for an EIDL Emergency Grant that allows an advance of $ 10,000.00 at the time of application. The emergency grant does not have to be repaid, even if the application is refused. If you receive an emergency grant and you are also approved for a PPP loan, the emergency grant amount will be reduced by the loan cancellation amount for the salary costs of your PPP loan. EIDLs subscribed before April 3, 2020 can be refinanced as a PPP loan.

PPP loans are forgivable. All costs covered (as indicated in the Loan Proceeds section above) during the covered period (see the Covered Period section above) are reimbursable and do not need to be reimbursed, as long as at least 75 % of proceeds were used for payroll expenses and no loan proceeds were used for unauthorized purposes. Loan cancellation is not automatic and an application must be submitted to be eligible. Accurate and thorough documentation of costs is strongly recommended in order to increase eligibility for the rebate. Amounts canceled are not included in gross income and are not taxable.

Which loan is right for your business?

These two loans can work together, with the EIDL covering the costs of working capital and fixed assets (with the exceptions listed above), and the PPP loan covering salary costs, interest on mortgages, rent, utilities and interest on other debt securities. . When applying for EIDL, be sure to state that your goal is to cover expenses. other than those authorized under a PPP loan on the loan application remain eligible for both loans.

Here’s how to apply and the types of documents and information you should start collecting:

To apply for an EIDL: Visit the website – the top of the page should have a COVID-19 link. In this link you will find information related to the EIDL application.

In order to be ready to apply for an EIDL, gather the following types of documents and information as soon as possible:

  • Corporate tax returns for the past three years
  • Personal tax declarations for the last three years
  • Company financial statements
  • Personal financial statements
  • Business debt schedule
  • Monthly sales figures for the last twelve months

To apply for a PPP loan: You can apply for a PPP loan from any lending institution approved to participate in the program through the existing US Small Business Administration (SBA) 7 (a) loan program and other lenders approved by the Treasury Department. This could be the bank you are already using or a bank nearby. You can call your bank or find SBA approved lenders in your area through the SBA’s online lender correspondence tool, or you can call your local small business development center and they can provide you with a list of lenders.

In order to be ready to apply for a PPP loan, gather the following types of documents and information as soon as possible:

  • Payroll for the last twelve months
  • 2019 tax returns (including all 2019 IRS FormQuarterly 940, 941) (this should provide employee count and / or 944 payroll for tax reports
  • Documentation of total health insurance premiums paid during the previous year) last twelve months
  • Documentation showing the sum of all funds in the pension plan

The SBA will not require business or personal financial statements for PPP loan applications.

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