Small Business Loans and the CARES Act

As you have probably heard, the massive Coronavirus Aid, Relief and Economic Security (CARES) Act passed by Congress in response to the current pandemic contains provisions for small business loans, which could be vital in seeing some companies through the resulting economic slowdown. Here are the highlights:

The Act contains nearly $350 billion for an initiative called the Paycheck Protection Program. As the name implies, it’s meant to incentivize business owners to keep employees on payroll. In order to get funds in the hands of business owners as quickly as possible, eligibility requirements are less stringent than with typical Small Business Administration (SBA) loans. The funds may be used not only for payroll but for other necessities including rent and utilities. Most importantly, these loans may be forgiven if borrowers maintain their payrolls throughout the crisis.

Also, in addition to businesses traditionally eligible for SBA programs, most businesses with 500 employees or fewer are eligible for disaster loans of up to $2 million for working capital. This Economic Injury Disaster Loan (EIDL) program also promises emergency cash advances of $10,000 within days of application, an amount that is not repayable even if the application is denied.

The details of both eligibility and the terms for each type of loan are extensive (a link to further information is below), but one significant difference between the two programs is notable: Paycheck Protection Loans are approved and administered by a network of 1,800 SBA-approved lenders, while the EIDL program is administered by the SBA directly.

Businesses seeking loans through the Paycheck Protection Program will probably get the most favorable results by applying to their existing lender, assuming that lender is SBA approved. Although a primary goal of both programs is swift approval and loan turnaround, anecdotal evidence suggests that has not universally been the case so far, as both lenders and the SBA find themselves swamped with applications. At this writing, Congress is considering emergency action to add another $250 billion to the program to meet demand.

Full details on eligibility and loan terms, as well as applications, may be found on the Assistance for Small Businesses page of the SBA’s website.

Questions about these or other issues facing your business? Contact Consolidated Insurance.