Fighting the Financial Impact of Coronavirus (COVID-19): The Small Business Administration’s Paycheck Protection Program and Economic Injury Disaster Loan and Loan Advance
The Small Business Administration (“SBA”) has made two significant programs available to help small businesses withstand the financial impact of the coronavirus (COVID-19) epidemic on the United States economy: (1) the Paycheck Protection Program; and (2) the Economic Injury Disaster Loan and Loan Advance. Both programs are intended to help small businesses by providing funds for necessary operational expenses. Businesses with 500 or fewer employees can apply so long as the eligibility criteria is met. Accordingly, any small business with less than 500 employees should investigate applying for one of these two programs.
With respect to nonprofit corporations, however, the two programs consider nonprofit corporations differently. Under the Paycheck Protection Program a nonprofit corporation may be eligible if it has obtained 501(c)(3) status. In order to be eligible for an Economic Injury Disaster Loan and Loan Advance though a nonprofit corporation need only provide satisfactory evidence from the State that the non-revenue producing organization or entity is a non-profit organization organized or doing business under State law. Accordingly, unless it has obtained 501(c)(3) status, a nonprofit community association may be eligible for an Economic Injury Disaster Loan and Loan Advance but not, at least currently, the Paycheck Protection Program.
Paycheck Protection Program
The first program, known as the Paycheck Protection Program (“PPP”) authorizes up to $349 billion in loans to small businesses in an effort to assist small businesses with job retention and other expenses, such as rent and utilities. The PPP was authorized as part of the March 27, 2020, Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which added the PPP as a new product for the SBA’s 7(a) Loan Program. Under the PPP, small businesses are eligible for loans of up to 2.5 times the average past two months of payroll expenses.
Repayment of the loans is deferred for six (6) months, and the SBA will forgive that portion of the loan proceeds used to cover the first eight (8) weeks of payroll and certain other expenses follow loan origination. The PPP does not require collateral, and a PPP loan has a maturity of two (2) years and an interest rate of 1.0%. Loan forgiveness is determined by the employer’s retention or quick re-hiring of employees and the maintenance of salary levels.
Participating SBA lenders will require documentation supporting an applicant’s eligibility, including that the employer had the employees and payroll claimed, and may use its own application form. For those looking to prepare their application for a PPP loan, however, a sample application form is available on the SBA’s website at the following address: https://www.sba.gov/document/sba-form–paycheck-protection-program-ppp-sample-application-form-0. PPP loan applications are to be submitted to participating SBA lenders who may begin processing loan applications on Friday, April 3, 2020. The PPP will be available through June 30, 2020.
Economic Injury Disaster Loan and Loan Advance
The second program, the Economic Injury Disaster Loan program, is a pre-existing program which permits eligible small businesses to apply for loan advances on an immediate basis of (3 days) up to $10,000 and working capital loans of up to $2 million. The $10,000 advance, if approved, does not need to be repaid. A business applying for an EIDL as a result of the financial impact of COVID-19 must be able to demonstrate that they have suffered a substantial economic injury due to COVID-19. The amount of the loan proceeds will be determined by the amount of the economic injury. Unlike the PPP, the EIDL program is administered by the SBA not a private lender. An application may be submitted to the SBA at the following address: https://covid19relief.sba.gov/.
The current economic climate for small businesses is extremely discouraging. However, these two programs are part of the SBA’s effort to help existing small businesses withstand the negative impact of COVID-19. If you need assistance with the submission of an application for either the PPP or EIDL, we at Hirzel Law can help navigate the application process.
Matthew W. Heron is a Member at Hirzel Law, PLC where he concentrates his practice in real estate, community association law, condominium law, real estate litigation, and zoning and land use. Mr. Heron also has extensive experience in a variety of litigation matters, including insurance coverage, non-compete agreements, automotive supplier disputes, and breach of contract. He routinely appears in both federal and state courts throughout Michigan and has argued before the Michigan Court of Appeals and the Court of Appeals for the Sixth Circuit.