On April 24, 2020, President Trump signed legislation that provides $484 billion in additional funding for the SBA, hospitals, and coronavirus testing through the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act originally included $350 billion in emergency loans for small businesses affected by COVID-19, but all funding available for the SBA Paycheck Protection Program was depleted, so additional funds were needed. The following is an overview of the additional funding provided in this legislation.
Summary of Second Round of Funds Approved
$484 billion in new coronavirus aid
- $321 billion to replenish the Paycheck Protection Program
$60 billion is set aside for underbanked businesses
- $30 billion is set aside for financial institutions with between $10 billion and $50 billion in assets
- $30 billion is set aside for financial institutions with less than $10 billion in assets
$60 billion in loans and grants for the Economic Injury Disaster Loan Program
- Of that $60 billion, $10 billion will take the form of grants
$75 billion to reimburse hospitals for COVID-19-related expenses or lost revenues
- $25 billion for coronavirus testing
- Of that testing money, $11 billion will go to states and some will also go to the federal government
Review of Paycheck Protection Program
- Covered period for loan: February 15, 2020 through June 30, 2020.
- Loan Proceeds must be used for payroll costs (including employee salaries, hourly wages, cash tips, paid sick or medical leave, and group health insurance premiums), and existing interest payments on mortgages, and rent and utility payments. Salaries, hourly wages and cash tips are capped at an annualized rate of $100,000.00 per employee. At least 75% of loan proceeds must be used for payroll costs.
- Loan proceeds cannot be used for payments to independent contractors; prepayment of interest on mortgages or other debt obligations, payment of principal on mortgage or other debt obligations, other business related expenses not listed above (e.g., inventory).
- Maximum Loan Amount is lesser of (i) $10,000,000.00 or (ii) 250% of average monthly payroll costs plus any outstanding balance of an EIDL taken out prior to April 3,2020.
- Terms: 2 year term, 1% interest rate, no personal guarantee or collateral required, non-recourse, but if loan proceeds used for unauthorized purposes, SBA may have recourse against the shareholder, members or partners for such unauthorized uses.
- PPP Loans are forgivable. All covered costs which are incurred and made during the 8-week period following the origination date of the PPP Loan are eligible for forgiveness so long as at least 75% of the proceeds were used for payroll costs and none of the loan proceeds were used for unauthorized purposes. Loan forgiveness is not automatic and an application must be submitted to qualify. Accurate and thorough documentation of costs is highly advised in order to increase eligibility for forgiveness. Amounts that are forgiven are not included in gross income and are not taxable.