In response to the American economy reeling from the Coronavirus (COVID-19) pandemic, the federal government recently signed into law the Coronavirus Aid, Relief and Economic Security (CARES) Act. Among other provisions, the Act provides businesses suffering under the debilitating effects of the pandemic with unprecedented access to emergency loans.
How Does the CARES Act Address Small Business Loans?
The CARES Act is the largest economic stimulus measure in modern history and promises to provide help for struggling American families and businesses.
Specifically, the Act includes the following provisions:
The Act includes nearly $350 billion for a federal small business loan program called the Paycheck Protection Program. The program is designed to get cash in the hands of suffering small businesses quickly, with less stringent eligibility requirements than the existing U.S. Small Business Association (SBA) loan programs. Paycheck Protection Program loans are designed to incentivize business owners to keep employees on payroll.
In addition to businesses already eligible for SBA programs, most businesses with 500 or fewer employees are now eligible for disaster loans of up to $2 million for working capital. Those businesses will also be eligible for an emergency cash advance of $10,000 within days of making the application, which is not repayable even if their loan application is denied.
Overview of CARES Act Small Business Loan Provisions As noted above, the CARES Act provides two main avenues for obtaining a business loan:
1. Through the Paycheck Protection Program
2. Through the SBA as a disaster loan Below you will find an overview of the eligibility requirements, key loan terms, and how to apply for each program.
In the Know
WHAT’S NEXT? It is clear that both Paycheck Protection Program loans and SBA EIDL loans provide very favorable terms to prospective borrowers. Eligible small businesses who have been economically impacted by the COVID19 pandemic would be wise to consider taking advantage of such programs. Businesses interested in the Paycheck Protection Program loans should consult with their banker(s). In the meantime, those also interested in the EIDL loans should evaluate with its advisors whether they are eligible. If so, businesses can consider gathering all relevant company documents and financial information that borrowers would ordinarily expect a lender to want to review (e.g., payroll information). As the pandemic develops and the CARES Act provisions are rolled out, look for more relevant guidance from ProAction Insurance in the near future.