Update on COVID-19 Loans
This blog entry will update small businesses about the loan programs available under the CARES Act. This blog updates my prior article COVID-19 Financing Options Simplified written on April 1, 2020 and our April 6, 2020 blog post.
PPP Loan Program
As of the date of this blog entry, the $350 billion allocated to this program is quickly evaporating. Lenders are so busy that many borrowers are stuck in the queue and may never receive the application link to apply. Additionally, applications can only be accepted online and many lender websites and servers are crashing as a result of traffic.
PPP Loan Details
- Eligible recipients may qualify for a loan up to $10 million determined by 250% of the average payroll costs from previous year or prior 8-week period (determined by Borrower).
- Loan payments will be deferred for six months.
- If you maintain your workforce, SBA will forgive the portion of the loan proceeds that are used to cover the first 8 weeks of payroll and certain other expenses following loan origination (must use 75% for payroll expenses and maintain workforce during 8-week period).
- Eligible Borrowers include small business, hotels, restaurants, independent owned franchises, 501 (c)(3) organizations who employ 500 or fewer; and sole proprietors and independent contractors meeting certain criteria.
- Interest rate of unforgiven portion of the loan is 1% and term is two years.
- Loan Applications are filed with qualified SBA 7(a) lenders, not directly with SBA.
- No collateral or personal guarantees.
- No prepayment penalties.
EIDL Loan Terms
- Up to $2 million loan for small business and such business must be experiencing a business loss due to COVID-19
- Interest Rate is 3.75% for small businesses; 2.75% for non-profits. Term is up to 30 years
- Small Business is defined like the PPP as 500 or less employees.
- Use of funds: working capital, paying fixed debts, payroll, accounts payable, other bills that could have been paid had the disaster not occurred. Loans are NOT intended to replace lost sales or profits or for expansion.
- There is no obligation to take the loan if offered.