*South Bay Credit Union does not provide small business loans; if you would like more information on a trusted resource click here. Please read the information below to see how the CARES Act and small business loan assistance may help you*
On Friday, March 27, 2020, Congress passed, and the President signed the Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES)
With more than US$2 trillion in total relief and US$350 billion in support for small businesses, this bill represents the third phase of legislation intended to help families and companies affected by the coronavirus disease 2019 (COVID-19) outbreak.
This memo will summarize the key components of CARES and provide an update on the changes to the SBA’s current Economic Injury Disaster Loan (EIDL) Program. Information contained in this presentation was derived from information provided by the US Chamber of Commerce and the SBA.
Paycheck Protection Program (PPP) – US$350 Billion
The most robust component of this ACT is a new Paycheck Protection Program under section 7(a) of the Small Business Act and an expansion of the Small Business Administration’s (SBA’s) current Economic Injury Disaster Loan (EIDL) program.
- Through section 7(a) of the Small Business Act, the SBA will administer forgivable loans of up to US$10 million per company to provide cash-flow assistance to employers who maintain their payroll during this emergency, help workers remain employed and enable affected small businesses to snap back after the crisis. The CARES Act provides an authorization level of US$349 billion through December 31, 2020.
- Eligible entities include:
- Independent contractors
- Sole proprietorships
- Corporations and LLCs
- veterans organizations
- nonprofits with 500 employees or less (with other restrictions)
- businesses with more than one location, if employing 500 or fewer employees per physical location, have under US$500 million in gross revenue; and fall within the “accommodation and food services” sector under the North American Industry Classification System (NAICS), are eligible for loans.
- Instead of having repayment ability as a determinant for eligibility, lenders must determine whether a business was operational on February 15, 2020, and had employees for whom it paid salaries and payroll taxes, or a paid independent contractor.
- The Act waives the “affiliation rules” only for companies that (1) operate hotels, motels or restaurants or provide traveler accommodations or catering services; (2) are franchises; or (3) receive financial assistance from a small venture investment company licensed under the Small Business Investment Act. Decisions will be based on a location or site by site basis, thus, individual hospitality and restaurants will be able to apply whether or not they are affiliated with a parent.
- The SBA Administrator may guarantee covered loans during the covered period (February 15, 2020 – June 30, 2020).
- Loan amounts covered by the guarantee are equal to a factor of the average total monthly payroll, debt, rent, and mortgage costs times 2.5.
- Payroll costs are defined as the sum of all payments for compensation, including salary, wage, cash tips, paid time-off, severance, healthcare benefits, state or local taxes.
- For sole proprietors or independent contractors, payroll costs are defined as the sum of all compensation payments, including wages, commissions or similar compensation capped at US$100,000.
- The maximum interest rate is set at 4%.
- The loan can be used for:
- Paid sick, medical or family leave;
- Costs related to the continuation of group healthcare benefits during periods of leave;
- Employee salaries;
- Mortgage payments; and
- Any other debt obligations.
- (The SBA will require lenders to provide complete payment deferment relief for a period of not more than one year.)
- The loans CANNOT be used for:
- Individual employee compensation over US$100,000 per year;
- Compensation of an employee whose principal place of residence is outside the US; and
- Sick and family leave wages covered under the Families First Coronavirus Response Act
- Loans would be forgiven completely if employers maintain their payroll during the covered period (February 15, 2020 – June 30, 2020). The forgiveness also includes amounts for rent, utilities and mortgage interest.
- SBA application fees are waived. Bank processing fees of 5% are not waived. 7(a) loan payments can be deferred for at least six months and not more than a year and require SBA to disseminate guidance to lenders on this deferment process within 30 days
- During the covered period (February 15, 2020 – June 30, 2020), no collateral or personal guarantee shall be required for the loan.
- Provisions in the bill that are germane to lenders:
- Provides delegated authority, which is the ability for lenders to make determinations on borrower eligibility and creditworthiness without going through all of SBA’s channels, to all current 7(a) lenders who make these loans to small businesses, and provides that same authority to lenders who join the program and make these loans.
- Provides an avenue, through the US Department of the Treasury, for additional lenders to be approved to help keep workers paid and employed.
- Additional lenders approved by Treasury are only permitted to make Paycheck Protection Program loans, not regular 7(a) loans.
Changes to the SBA’s Economic Injury Disaster Loans (EIDLs)
Another important aspect of the CARES Act for small businesses is that it expands eligibility for the SBA’s Economic Injury Disaster Loans (EIDLs). In early March, the SBA’s disaster loan program was extended to all small businesses affected by COVID-19, but the CARES Act opens this program up further and makes it easier to apply.
These changes include:
- EIDLs are now also available to Tribal businesses, cooperatives, and ESOPs with fewer than 500 employees. They are also available to all non-profit organizations, including 501(c)(6)s, and to individuals operating as sole proprietors or independent contractors.
- EIDLs can be approved by the SBA based solely on an applicant’s credit score.
- EIDLs that are smaller than $200,000 can be approved without a personal guarantee.
Borrowers can receive a $10,000 emergency grant cash advance that can be forgiven if spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments or repaying obligations that cannot be met due to revenue losses.
For everything you need to know about applying for a small business loan, see the U.S. Chamber’s Small Business Loan Guide.
Can a business get an EIDL and a Paycheck Protection Program loan?
Yes, small businesses can get both an EIDL and a Paycheck Protection Program loan as long as they don’t pay for the same expenses, including payroll and related expenses. However, be sure to check with your SBDC Advisor or lender before taking both types of loans if you are not sure of the specifics.
Important Resources For Your Business
The Small Business Development Center (SBDC) at El Camino College offers no-cost business advising and assistance to help businesses affected by COVID-19. The SBDC has also provided this very comprehensive COVID-19 guide to many critical areas related to:
- SBA: Economic Injury Disaster Loan
- EDD For Business Owners
- EDD For Business Employees
- Business Interruption Insurance
- The Finance Center
- Taxpayers Relief
- Families First COVID19 Response Act
- Technology Products/Teleworking Tips
- Force Majeure Clauses
Please reach out to an SBDC Advisor. They can be reached by phone at 310.225.8277 or we can connect you with our SBDC partner.
Local, State & Federal Resources
- LA County Public Health Dept.
- City of Lomita
- Lomita Coronavirus information and updates.
- Lift Up Lomita
- Small Business Development Center at El Camino College
- Small Business Administration (SBA) Economic Injury Disaster Loan
- SBA Guidance for employers to plan and respond to COVID-19
- Centers for Disease Control (CDC)
- Guidance on Preparing Workplaces for COVID-19 (Dept of Labor, OSHA)
- Cal/OSHA Guidance on Requirements to Protect Workers from Coronavirus
- Employment Development Department (EDD) – Reduced Work Hours – Unemployment Insurance Work Sharing Program – alternative to layoffs. Employer Info and Information for Workers.
- EDD Tax Assistance – request a 60-day extension to file payroll and more. Call the EDD Taxpayer Assistance Center 1-888-745-3886 (toll-free).
- CA Infrastructure and Economic Development Bank (IBANK)
Don’t hesitate to contact the Chamber via email email@example.com
or call 424-378-7111.
Quick Updates: as of 3/31/2020
Quick updates: As of 3/31/2020
1) You will need to apply/re-apply for the COVID-19 ECONOMIC INJURY DISASTER LOAN APPLICATION through the new streamlined online portal. It has been simplified and should be much quicker than before.
2) If you click the box on the application for a $10,000 emergency grant cash advance, you will need to prove that expenses are eligible for forgiveness.
3) Single-member LLCs and non-profits may also apply.
Get your questions answered:
Daily webinars providing COVID-19 Info. for Small Businesses
The SBDC is providing daily webinars for the Small Business Community on information as it relates to funding information during the COVID-19 pandemic.
Webinar discussion: Economic Injury Disaster Loan, Payroll Protection Program, Disaster Bridge Loan, 7a Forgiveness Program, and other funding opportunities for your business.
Information is changing and updating daily and we want to make sure Small Business owners are being provided the most up to date factual information as to what is available for funding.
The webinar will be 30-40 minutes daily with a brief Q&A after.
information provided by SBDC at El Camino College, distributed by The City of Lomita Chamber of Commerce. 3/30/2020