What Small Business Should Know About COVID-19 Assistance Programs

THERE HAVE BEEN FURTHER UPDATES TO THIS PROGRAM SINCE THE ORIGINAL POST. WE WILL UPDATE THE INFORMATION FURTHER SOON

A lot of people have heard about the federal funds available to small businesses to assist with the economic conditions resulting from the government imposed shutdown but there remain a lot of practical questions about the program. This is an overview of some of the relief available. This article is being written on April 10, 2020 and the readers should understand that some of the law is in flux still. If you have specific questions please call us and we will help if we can. At this point we are not charging for quick questions we can handle over the phone unless we have to for insurance or liability purposes. We simply want to help.

Here are the basics:

  • At the moment the federal government is offering two major programs to help business, the Payroll Protection Program (PPP) and the Economic Injury Disaster Loan Program (EIDL).
  • You cannot participate in both programs for the same purposes. This means that if you are using the PPP for payroll you will not be able to use the EIDL for the same purpose. You can apply to both programs (and probably should) but the funds must be used for different purposes. This can be confusing and you should call us for details.
  • If you are an independent contractor or freelancer you are probably eligible for these programs.
  • EIDL is described here:
    • To Qualify:
      • 500 or fewer employees usually applies (though there can be exceptions – call if you need a specific answer). Max tangible net worth of $15 million and average net income for two prior fiscal years not exceeding $5 million.
      • Ohio businesses qualify (and others) but this does not necessarily extend to foreign locations
      • No personal guarantee is required on loans up to $200,000
      • In some cases approval will be based on credit score (this is helpful for new businesses that have not filed their first year taxes)
      • No collateral for loans for $25,000 or less. Business collateral is acceptable for loans greater than $25,000
      • The SBA may review business tax records
    • What you can get:
      • Up to $10,000 can be made available as an advance. This is essentially grant money and will not have to be repaid. Further this money will be awarded within three days of application of your EIDL loan (in theory) and will be awarded regardless of the approval of the rest of the application.
      • Loans will be made up to $2 million
      • Rates are 3.75% for traditional business and 2.75% for non-profits.
      • Terms are up to 30 years
      • No proof that credit was not extended elsewhere is necessary
      • No payments are due for 1 year
    • These loans are designed to keep you in the position you would be if the disaster had not occurred. Typically, these funds can be used for working capital to pay fixed debts, payroll, accounts payable, and other bills. Questions about a specific use will typically require some research.
  • PPP is described here:
    • To Qualify:
      • 500 or fewer employees (similar to the EIDL above, there may be exceptions)
      • Ohio businesses (and other US based businesses are eligible)
      • In operation on February 15,2020 and had employees or independent contractors on 1099
    • What you can borrow:
      • Up to $10 million or an amount calculated by the formula below
      • The average of your monthly payroll for all employees (up to $100,000 per employee) times 2.5. Then subtract the outstanding amount of EIDL (including advances) made between January 31,2020 and April 3, 2020.
        • An example given in the SBA guidance is: Some employees make more than $100,000, outstanding EIDL loan of $10,000
          • Annual payroll: $1,500,000
          • Subtract compensation amounts in excess of an annual salary of
          • $100,000: $1,200,000
          • Average monthly qualifying payroll: $100,000
          • Multiply by 2.5 = $250,000
          • Add EIDL loan of $10,000 = $260,000
          • Maximum loan amount is $260,000
      • Payroll costs include US based employees salary, wages, commissions, cash tips or equivalent (based on employer record or good-faith employer estimate), vacation, leave (for most reasons), allowance for separation or dismissal, payment of insurance, retirement, and state and local taxes (of payroll).
      • For an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.
      • Federal employment taxes and qualified sick and family leave credit for which a credit is allowed are not included in the calculation
      • Independent contractors should file for PPP under their own names or their own company names and are not part of the PPP calculation for businesses that hire them.
    • The loans will be charged a 1% interest rate and have a two-year maturity date.
    • There is a 6-month deferment before payments must be made.
    • Forgiveness and fund uses:
      • The entire loan may be forgiven.
      • At present, no more than 25% of the loan may be used for expenses not related to payroll costs. This guidance is not in line with the legislation and may or may not change.
      • Funds may be used for: payroll costs, benefits, rent, utility, interest on obligations incurred prior to February 15, 2020, and/or refinancing EIDL loans made between January 31, 2020 and April 3, 2020.
    • Misuse of funds can result in charges of fraud

There is a lot to these programs and the details may seem overwhelming. We are here to help with specific questions and pray for all the businesses and employees impacted by this disaster.