The historic $2 trillion dollar coronavirus relief package, officially known as the Coronavirus Aid, Relief and Economic Security (CARES) Act, provides significant financial assistance and benefits to eligible Rhode Island and Massachusetts businesses and non-profits.
If COVID-19 has impacted your organization and you need:
- Significant capital to cover your businesses’ payroll, health care benefits, insurance premiums, and certain business expenses, then consider the CARE Act’s Paycheck Protection Program; or
- Fast, limited capital to keep your business afloat, then consider the CARE Act’s Economic Injury Disaster Loan Program.
The CARES Act is specifically designed to assist small and family-owned business, as well as non-profits, during the COVID-19 crisis.
Paycheck Protection Program (“PPP”)
The PPP is a loan program that allows eligible businesses and non-profits cover their operating expenses and maintain their payroll. The loans themselves are 100% guaranteed federally and unsecured, meaning they require no collateral, personal guarantee or evidence that you were unable to obtain credit elsewhere. Importantly, the PPP loans allow businesses to cover payroll, health care benefits and related insurance premiums, certain business expenses such as rent and utilities and interest payments on mortgages and debts incurred prior to the PPP loan. Since the loan program is retroactive to February 15, 2020, businesses can rehire recently laid-off employees.
Importantly, the PPP allows for partial loan forgiveness for those amounts spent by the business in the 8 weeks following the origination of the loan. Generally, the types of expenses that can be forgiven include rent, utilities, payroll costs and mortgage interest. Also, all payments are deferred until June 30, 2020.
In order to qualify for a PPP loan, a business must be considered a small business under the SBA regulations or a nonprofit organization that employs less than 500 employees. These benefits are also available to individuals who operate a sole proprietorship or as an independent contract and eligible self-employed individuals. In order to apply for a PPP loan, a business must go to participating SBA 7(a) that can review and approve the loan on the same day.
Economic Injury Disaster Loan (“EIDL”) Program
The CARES Act also expanded the SBA’s existing EIDL Program. Companies throughout the country, including in Rhode Island and Massachusetts, are eligible for EIDL loans relating to economic harms caused by the COVID-19 pandemic. These loans allow business to cover payroll costs or increased costs due to supply chain interruption as well as pay obligations that can’t be met due to decreased revenues. The interest rate on an EIDL loan is 3.75% fixed for small business and 2.75% for nonprofits. Generally, EIDL loans are a 30-year term and amortization.
In order to qualify for a EIDL loan, a business must have suffered a “substantial economic injury” due to the COVID-19 pandemic. The SBA is the entity responsible for determining whether this initial threshold has been met. In addition, the business must have less than 500 employees. Importantly, non-profits, sole proprietors and independent contractors are also eligible for these benefits.
The CARES Act also permits applicants to request an advance of up to $10,000 to pay necessary working capital needs. It is expected these funds will be paid by the SBA within 3 days. In essence, these funds are a grant that do not have to be repaid, even if the application is denied, but the amounts advanced deducted from any loan forgiveness under a PPP loan. Moreover, businesses that have previously obtained an EIDL loan may be able to refinance it through the PPP program.
For more information
This update was written by Gregory N. Hoffman and C. Alexander Chiulli. For questions or additional information about how the CARES Act can help your organization, please contact Greg or Alex at 401.273.7171 for assistance during these uncertain times.
Barton Gilman provides experienced and innovative legal advice on every facet of small business and nonprofit formation, governance, financing and operations. We regularly assist our clients with employment matters, contracts, compliance with state and federal statutes, trademark and intellectual property, bylaws and policies, and liability claims.