COVID-19: Business Implications Series — Should Your Business Apply for a CARES Act Loan, EIDL, or Both?

On Friday, March 27, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law.
The CARES Act has created several new Federal Small Business Administration (SBA) loan programs or amendments to existing programs, including Economic Injury Disaster Loans (EIDLs), to assist businesses that have been impacted by COVID-19.
What is a Payroll Protection Program (PPP) loan within the CARES Act?
A PPP loan is an SBA loan program offering loans of up to $10 million to any business concern, including independent contractors and sole proprietors. The loans will be issued by SBA approved lenders (i.e., banks).
  • A CARES Act loan is 100% SBA backed.
  • The loan does not require collateral or personal guarantees.
  • All loan application fees are waived by the SBA.
  • The loan has a maximum 4% interest rate and maximum maturity date of 10 years.
  • Payments are deferred 6–12 months.
  • The loan has no prepayment penalty.
  • In addition to uses already allowed under SBA’s business loan program, funds can be used for payroll costs, group health, mortgage and other debt interest, rent, and utilities.
Potential Loan Forgiveness
  • Some of the loan proceeds may be forgiven when used for payroll costs, interest payments on mortgages, rent, and utility payments.
  • Adjustments are made for both the number of Full Time Equivalents (FTEs) retained during the loan period as well as for payroll deductions greater than 25%, with several qualifiers.
How has the CARES Act amended EIDLs?
The CARES Act made several changes to the EIDL program, as described in our previous COVID-19 communication.
  • The CARES Act makes applying for an EIDL loan significantly easier with a new web application portal.
  • The CARES Act removes standard EIDL program requirements, now allowing applicants to also seek financial assistance elsewhere.
  • The CARES Act amends the EIDL loan program by providing an emergency grant of up to $10,000 to businesses while their EIDL loan is being processed. The advance may be used to cover payroll, sick leave, mortgage payments, and other obligations; and does not have to be repaid even if the EIDL loan application is denied.
Should your business apply for a CARES Act loan, EIDL, or both?
The short answer: it depends. Because each business is different, every business should consider the various assistance programs available to determine which fit is best, including other programs and benefits that are available.
BlueWater Partners is committed to supporting you during this unprecedented time, for guidance on your business’ specific situation or for additional information about the CARES Act and EIDLs, please email Ron Miller or Jeff Jackson.