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On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES) became law. The Act appropriated $349 billion in funding for small business owners to counteract job loss and potential business failure as a result of the crisis. Notably, the Act introduced the Paycheck Protection Progam and allowed small business disaster loans to be classified under COVID-19’s effects.

For small businesses, this means you should strongly consider applying online for one of these two relief loan options to sustain your operations and employees.

Note: On April 16th, the SBA announced a lapse in appropriations and no new applications will be accepted until more funding is secured.

The Paycheck Protection Program (PPP)

A PPP loan is a federally guaranteed loan that allows for partial or full forgiveness on the loan and interest, as long as companies provide accurate documentation that the funds were used for payroll, mortgage, leasing, and utilities. As for the maximum amount of funds available from a PPP loan, companies must use either 2.5 times their average monthly payroll costs, which includes elements such as salary, healthcare benefits, and state and local tax, or $10 million — whichever is less.

An Interim Final Rule issued on April 2nd established the unforgiven loan amount would have a two-year term, 1% interest rate and an initial six-month principal and interest deferment (a pause on payments). Also, PPP loan applications are processed on a first-come, first-serve basis.

Eligibility

To take out a PPP loan, your company must be a small business concern, including a sole proprietor, or a non-profit, veterans organization, or Tribal business concern. Eligible companies also must have been in operation on February 15, 2020 and paid payroll taxes and salaries to employees or independent contractors. Also, the CARES Act waived SBA affiliation rules of eligibility for businesses in foodservice and accommodation, as well as franchises and those receiving financial aid from an investment company.

The Economic Injury Disaster Loan Program (EIDL)

The CARES Act also broadened the existing EIDL program under the SBA. EIDL loans have longer terms of up to 30 years and a maximum of $2 million. The interest rate of for-profit establishments is 3.75%, whereas non-profits are 2.75%. Similar to PPP loans, EIDL loans are for paying debts, salaries and bills.

The EIDL program does not contain any loan forgiveness provisions. However, a company that previously applied for an EIDL loan can refinance for PPP assistance. With the application of an EIDL loan, small business owners can request an advance of up to $10,000 that does not have to be repaid. An automatic one-year deferment on loan payments applies.

Eligibility

An applicant must demonstrate they were adversely impacted by COVID-19 and be a small business of 500 or fewer employees, including individual contractors and proprietors. In addition, the CARES Act waived the SBA requirement that an organization must show they were unable to receive credit elsewhere.

Contact MANTEC for Consulting Resources

MANTEC will continue to provide COVID-19 resources and counseling services for businesses in the manufacturing sector during this unprecedented period, with the management of employees, supplies and communication with your clients.

For more guidance from a MANTEC advisor, please contact us.

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