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How to Apply for CARES Act Loans

April 2, 2020

Original content c/o: National Restaurant Association

Here’s what you need to do to take advantage of loans available through the coronavirus relief bill.

The coronavirus relief package known as the CARES Act signed into law March 27 by President Trump will make low-cost loans available to you to help get you through the economic hardship caused by the pandemic.

Check with your accountant or tax advisor to see which of the loan programs provides greater benefits and lower risks to your business.

The two loan programs are Small Business Administration’s existing Economic Injury Disaster Loan (EIDL) program and the Paycheck Protection Program (PPP) loans created by the new law.

You can apply for both programs, as long as the applications and payments you make with the funds are for different purposes! For example, even though you’re allowed to make rent or mortgage payments with PPP loan proceeds, you can reserve those for funds obtained through an EIDL.

Check with your accountant or tax advisor to see which of these programs provides greater benefits and lower risks to your business. The programs are different, with different qualification requirements and terms, so you need to carefully consider the best way to help your business through the next few months of the crisis.

Each is outlined below and here’s the information you need to gather and how to apply for each program.

  • Your average monthly payroll costs from 2019
  • Your current monthly payroll costs, from Feb. 15, 2020 on.
  • Your monthly P&L statements this year compared with a year ago.

Paycheck Protection Program

The loan program will be administered by SBA but made available through the 1,800-plus banks that SBA works with. (SBA also expects to expand the number of banks participating in the program.)

You’re encouraged to use the business banking relationships you already have. If your bank doesn’t plan to participate, you can find a list of the most active SBA lending banks here.

Features of PPP loans include:

  • No collateral or personal guarantee. Unlike typical SBA loans, you don’t need collateral or a personal guarantee, unless the funds are used for expenses or payments that aren’t covered.
  • Loan fees. The program waives SBA loan fees on borrowers and banks.
  • Deferral of payments. Your loan payments of principal and interest are automatically deferred for a period of six months to one year at the lending bank’s discretion.
  • Lack of prepayment penalties. You won’t be penalized if you pay off the loan early.
  • Maximum rate and term. Banks can charge a maximum of 4% interest on PPP loans, and loan terms have a maximum of 10 years from the date of your application.

You’ll need to confirm that:

  1. Current economic conditions make the loan request necessary to support ongoing operations (conditions such as a state-mandated shutdown order);
  2. Funds will be used to retain workers and maintain payroll or make other qualified payments;
  3. You don’t already have an SBA (7)(a) loan pending for the same purpose or that would duplicate payments to you; and
  4. You won’t use amounts applied for or received under another covered loan for the same purpose as a Paycheck Protection Program loan received between Feb. 15 and Dec. 31, 2020.

Economic Injury Disaster Loans

SBA EIDL provisions were expanded under the CARES Act to include:

  • SBA approval based solely on your credit score; no tax return is necessary, and a prior bankruptcy doesn’t disqualify you.
  • You don’t need to demonstrate you’re unable to obtain credit elsewhere.
  • Loans smaller than $200,000 don’t require a personal guarantee or real estate as collateral; however, business property will be used as a general security interest on loans over $25,000. Loans over $200,000 require personal guarantees of 20%.
  • You can request an advance of up to $10,000 to pay allowable expenses; the advance is expected to be paid by SBA within 3 days. Essentially an emergency grant, you don’t have to repay it, even if your application is denied. (If you subsequently get a PPP loan, this amount will be deducted from any loan forgiveness you receive from that program.)

The interest rate on EIDL loans is 3.75% fixed, for up to 30 years. Other than the $10,000 emergency grant, there are no loan-forgiveness provisions in the EIDL program.

For you to qualify, SBA will still look at your ability to repay the loan as part of the application process (even if it’s just based on your credit score).

EIDLs under the CARES Act are based on a company’s actual economic injury (up to $2 million) determined by SBA (less any recoveries such as insurance proceeds).

Get information to apply for an EIDL through SBA.