The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law on Friday, March 27, 2020 and introduces the Paycheck Protection Program (“PPP”). The purpose of the PPP is to prevent job loss and small business failure due to COVID-19. The PPP is available to small businesses, including sole proprietorships and non-profits organizations, to provide a forgivable loan to cover payroll and other costs. The CARES Act also expands the SBA’s Economic Injury Disaster Loan (“EIDL”) Program.
|Paycheck Protection Program
Economic Injury Disaster Loan
New Jersey Aid to Small Businesses
Delaware’s Hospitality Emergency Loan Program
Where can I apply for the Paycheck Protection Program?
You can apply for the Paycheck Protection Program (PPP) at any lending institution that is approved to participate in the program through existing U.S. Small Business Administration (SBA) 7(a) lending programs and additional lenders approved by the Department of Treasury. Use SBA’s online Lender Match tool.
Who is eligible for the loan?
You are eligible for a loan if you are a small business that employs 500 employees or fewer, or if your business is in an industry that has an employee-based size standard through SBA that is higher than 500 employees. Restaurants and/or hotels with multiple locations, provided each location has 500 employees or fewer, are also eligible, as well as tribal businesses, 501c3 veteran organizations and 501c3 non-profit organizations.
Are independent contractors, sole proprietors, gig economy workers and self-employed individuals eligible for the loan?
Yes. They are all eligible for the PPP.
What is the maximum amount I can borrow?
The amount a small business Is eligible to borrow is the lesser of 2.5 times the average monthly payroll costs or $10,000,000. The amount is intended to cover eight (8) weeks of payroll and any additional amounts for payments for debt obligations. The eight (8) week period can be applied anytime between February 15, 2020 and June 30, 2020.
How can I use the proceeds such that the loan will be forgiven?
The amount of principal that may be forgiven will equal the expenses for payroll, interest on mortgage obligations, rent payments, leases and utilities. Payroll costs include salaries up to an annual rate of pay of $100,000, hourly wage and cash tips, paid sick or medical leave and group health insurance premiums. Any money used for other business-related expenses will not be forgiven.
How much will be forgiven?
The purpose of the PPP is to help employers retain their employees at their current rate of pay. If you keep your employees, the payroll costs for the covered period will be foregiven. If you lay off employees, the forgiveness will be reduced by the percent decrease in the number of laid off employees. If your total payroll expenses on employees making less than $100,000 annually decreases more than 25%, the amount of loan forgiveness will be reduced by same amount.
But what if I already laid off some employees?
You can still be forgiven for the full amount of your payroll costs if you rehire your employees by June 30, 2020.
Am I responsible for interest on the forgiven amount?
No. The amount of forgiveness and interest accrued through date of payment by SBA to lender will not be your responsibility. You will however be responsible for any interest remaining on funds that were not forgiven and/or accrued after said date.
What is the interest rate and terms for the loan not forgiven?
Terms will vary based on lender. However, the SBA limits the term features to a 10-year term with interest capped at 4%. There will be no fees, or personal guarantee requirement. Loan payments will be deferred for a minimum of 6 months up to 1 year.
What is the deadline to apply?
June 30, 2020.
CARES Act expands the Economic Injury Disaster Loan Program for Small Businesses
Another option for small businesses is the SBA’s existing Economic Injury Disaster Loan (“EIDL”) Program.
What are the CARES Act borrowing terms?
The CARES Act provides for longer-term loans with more favorable borrowing terms, including:
- Eligibility period of January 31, 2020 – December 31, 2020.
- Now available to businesses with no more than 500 employees and any individual operating as a sole proprietor or independent contractors
- Permits applicants to request an advance of up to $10,000 to pay allowable working expenses; the advance is expected to be paid in 3-days.
- Loans up to $200,000 do not require personal guarantees
- Waives requirement that applicant be unable to demonstrate inability to obtain credit elsewhere.
However, the CARES Act did not waive the requirement for collateral on EIDL loans over $25,000, and processing requires applicant’s ability to repay the loan to be considered.
What is the process?
To expedite the process, the SBA can approve the loan solely based on credit score of applicant.
Small businesses that already applied for an EIDL loan or received funds attributable to the COVID-19 impact, can seek to refinance their EIDL loan under the PPP to take advantage of the forgiven provision. Importantly, while a small business may be eligible for both PPP and EIDL loans, it cannot seek recovery under the EIDL for costs that are covered by PPP.
New Jersey Programs to Aid Small Businesses Dealing with COVID 19
What type of aid is being made available to New Jersey small businesses?
The New Jersey Economic Development Authority has announced an aid package consisting of a series of grants, zero interest loans and other programs intended to assist between 3,000 and 5,000 small to mid-sized New Jersey businesses.
What businesses are eligible for each program?
There has been a $5 million grant program established for retail, restaurant, entertainment and other service industry businesses the employ fewer than 10 people, had had to shut down and have had at least a 20% drop in revenue. These businesses may receive grants between $1,000 and $5,000 if they can attest that this money is needed to keep the business afloat and that the business will either not staffing or will make every effort to rehire laid off or furloughed staff.
A $10 million loan program has been established for mid-sized businesses and non-profits with no more than $5 million on annual revenue. These are 10 year loans, capped at $100,000. The loans will be interest free for the first five years and will have an interest rate of no more than 3% in the last five years. In order to be eligible for these loans a business must be at least one year old and be able to show that as of the end of 2019 that they were profitable enough to meet existing debt obligations.
Is there any other assistance being provided?
The state is directing $20 million in loan guarantees, grants and other relief to commercial banks and nonprofit community development lenders which the state expects will result in double that amount of available private loans through those sources
How does my business apply for these programs?
As of this morning (March 30, 2019) no applications have been made available for these programs, but the state expects to begin taking applications this week. The state has established a website to see which programs your business may be eligible for: https://assistance.business.nj.gov/.
Businesses are also encouraged to visit https://cv.business.nj.gov for additional information and updates.
Delaware’s Hospitality Emergency Loan Program (H.E.L.P.)
What is the Hospitality Emergency Loan Program?
Delaware’s Division of Small Business has launched H.E.L.P. to provide no interest loans of up to $10,000 per month to Delaware businesses in the hospitality and personal services industries to cover rent, utilities and other immediate, unavoidable expenses, but not personnel. The loans will have a 10 year term with a 9 month deferment period.
What businesses are eligible for H.E.L.P.?
Eligible businesses must have been in operation for at least one year and have annual revenue below $2.5 million. Eligible businesses must also be operating under one of the 17 NAICS codes listed on the application, which can be found here: https://business.delaware.gov/wp-content/uploads/sites/118/2020/03/Hospitality-Emergency-Loan-Program-Application_UPDATED.pdf
Contacting An Attorney?
Let the attorneys at Mattleman, Weinroth & Miller, P.C. help you apply learn more about these various programs. Complete the Contact Form for your free consultation and an experienced Mattleman, Weinroth & Miller, P.C. attorney will contact you within 48 hours. You can also contact us directly by calling the below numbers