New Round of COVID-19 Relief Funding Provides Aid for Small Businesses

A new round of relief funding to help small businesses withstand the economic blow of the COVID-19 pandemic has been signed into law, with at least one safeguard that may help aid small business owners who said they were shut out of the first round of funding.

The Interim Stimulus Plan pumps another $310 billion into the Paycheck Protection Program (PPP) and another $60 billion in loans and grants into the Economic Injury Disaster Loan (EIDL) program, both of which are administered by the U.S. Small Business Administration (SBA).

The $484 billion Interim Stimulus Plan legislation also includes $75 billion for hospitals and $25 billion for coronavirus testing but does not include additional funding for states and local governments that Democrats had sought.

AID FOR THE SMALLEST BUSINESSES

Created by the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, the PPP ran out of funds within days under the heavy demand for the maximum $10 million loans it provided to help businesses keep workers on their payrolls.

Many small businesses complained that they were shut out of funding because banks that administered the loans favored larger companies and those with which they had pre-existing banking relationships.

The new law aims to address this problem by carving out $60 billion of the additional funding for smaller lenders. Specifically, it designates $30 billion of the $310 billion for banks and credit unions with $10 billion to $50 billion in assets and another $30 billion for institutions with less than $10 billion in assets.

PAYCHECK PROTECTION PROGRAM

The PPP loans are available to many small businesses — including sole proprietors, self-employed individuals, independent contractors and non-profits — affected by COVID-19. Businesses can qualify for 100 percent loan forgiveness for amounts used for payroll costs, mortgage interest, and rent and utility payments during the eight weeks after receipt of the loan, as long as no more than 25 percent of the loan proceeds are used for nonpayroll costs.

Borrowers also must maintain staff and payroll to qualify for full forgiveness. Loan forgiveness will be reduced if salaries and wages are reduced by more than 25 percent for any employee who made less than $100,000 annualized in 2019. The interest rate on the unforgiven portion of a PPP loan is 1 percent, and the loans run two years. All payments are deferred for six months, but interest will continue to accrue. Borrowers can prepay without penalties or fees.

“Small businesses” generally are defined as those with fewer than 500 employees. But, for businesses in the hotel and restaurant sector, the CARES Act applies the 500-employee threshold on a per-physical location basis. That explains how large businesses with easier access to alternative funding sources, including many that are publicly traded such as Shake Shack and the parent company of Ruth’s Chris Steak House, obtained PPP loans in the first round of lending. (Shake Shack and the parent company of Ruth’s Chris Steak House have since pledged to return their $10 million loans.)

The new law leaves this definition of small business intact, enabling large hotel and restaurant chains to access the funds.

EIDL funds

The Interim Stimulus Plan also adds $50 billion in loans and $10 billion in grants to the SBA’s Economic Injury Disaster Loan (EIDL) program. It also extends EIDL relief to agricultural businesses with no more than 500 employees.

Under the CARES Act, small businesses with fewer than 500 employees experiencing a temporary loss of revenue due to COVID-19 can obtain advances of up to $10,000 within days of applying; the loan advance doesn’t have to be repaid. The SBA has simplified its existing EIDL application process and relaxed the credit standards in light of the COVID-19 crisis.

The interest rate on EIDLs is 3.75 percent, and businesses can borrow up to $2 million. Repayment periods can run up to 30 years, determined on a case-by-case basis based on the borrower’s ability to repay. The CARES Act provides an automatic one-year deferment on repayment, but interest begins to accrue immediately.

MORE FEDERAL RELIEF TO COME

Congressional leaders and the White House have said another stimulus package is already in the works. We will keep you informed as the details unfold

In the meantime, if you would like information about how you can access federal aid relief funds to help your business through the COVID-19 crisis, please contact our advisors.