On March 27, 2020, President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) into law. The law provides more than $2 trillion in emergency economic relief to individuals and businesses affected by the coronavirus through numerous new stimulus and aid programs.
This particular summary will focus on two programs administered by the Small Business Administration (SBA) that small businesses may consider: (1) the CARES Act’s new Paycheck Protection Program (PPP) and (2) the SBA’s existing Economic Injury Disaster Loan Program (EIDL).
Paycheck Protection Program
The new PPP is an extension of the SBA Section 7(a) program. Any small business (generally a business with less than 500 employees) can apply for loans up to the lesser of 2.5x its average monthly payroll costs or $10 million. Thee loan proceeds must be used to pay for payroll costs, mortgage interest, rent, or utilities. These loans are made on a non-recourse basis, with no personal guarantees. The interest rate is capped at 4% and the repayment term is for a period of up to 10 years. Payments may be deferred for one year. Businesses are also eligible for tax-free forgiveness of some or all of the principal amount borrowed if the loan proceeds are used in the eight-week period after the origination date of the loan for qualifying expenditures. However, businesses that receive loans and later cut back on workforce levels or gross payroll after February 15, 2020 are only eligible for limited forgiveness (pursuant to certain formulas) unless they restore their current workforce levels and gross payroll to pre-COVID-19 emergency amounts by June 30, 2020.
Economic Injury Disaster Loan Program
The existing EIDL program has been liberalized. More small businesses may apply for loans of up to $2 million, depending on economic damages and the ability to repay. The interest rate is capped at 4% and the repayment term is for a period of up to 30 years. Small (less than $200,000.00) loans are also available without the need for personal guarantees, and applicants are eligible to receive advances requiring no repayment of up to $10,000.00. While EIDL loans are not subject to forgiveness, they do present an additional potential source of funds for businesses that are struggling through the current crisis, and loan proceeds (other than advances) may be used for expenses other than payroll, interest, rent or utilities.
Comparing the Programs
| Paycheck Protection Program | Economic Injury Disaster Loan | |
| Eligibility | Small businesses with 500 or less employees
Sole proprietorship, with or without employees, or as an independent contractor |
Small businesses that have been in operation on February 15, 2020 with 500 or less employees
Individuals who are sole proprietorship or an independent contractor |
| Originator | Bank, Credit Union, or a Technology Lender that is SBA approved and does SBA 7(a) Loans | Small Business Administration (Direct) |
| Maximum Loan Amount | Lesser of $10M or 2.5X average monthly payroll costs | Up to $2M, dependent on the applicant’s demonstrated economic injury and ability to repay |
| Use of Proceeds | Restricted to certain payroll, rent, interest and utility costs | Unrestricted, although “advances” are subject to limits |
| Eligible for Forgiveness | Yes | No |
| Personal Guarantee Required? | No | No for loans up to $200,000, otherwise yes. |
| Recourse | No, unless proceeds used for the non-permitted purpose | Yes |
| Interest Rate | Up to 4% | Up to 4% |
| Maturity | Up to 10 Years | Up to 30 Years |