SUMMARY: The CARES Act has two provisions designed to help struggling businesses: The Paycheck Protection Program and Economic Injury Disaster Loans. Learn how these programs function and how they can help businesses survive both the shutdown and the reopening process.
Many parts of the country are still under shelter-in-place orders, allowing only essential businesses like hospitals, grocery stores, and auto repair shops to continue serving customers. Businesses that have been closed to the public for a month or more can struggle to keep employees on the payroll and pay rent and other overhead costs.
Enter the CARES Act, signed into law on March 27, 2020.1 This Act has two provisions designed to help struggling businesses: The Paycheck Protection Program and Economic Injury Disaster Loans. Learn how these programs function and how they can help businesses survive both the shutdown and the reopening process.
The Small Business Paycheck Protection Program (PPP)
This program, managed through the Small Business Administration (SBA), provides forgivable loans designed to extend up to 8 weeks of payroll costs to qualifying small businesses.2 The PPP can help businesses avoid furloughing or laying off employees, both of which can compromise the reopening process. In addition to paying employee wages, PPP funds can also be used to pay mortgage interest, rent, utilities, and other payroll-related costs, like benefits.
The SBA will forgive all loans extended through the PPP so long as employees remain on the business's payroll for eight weeks and the money is used for qualifying expenses. (These restrictions are designed to prevent employers from accepting PPP funds and furloughing or laying off employees anyway).
The PPP is available to small businesses, eligible non-profit organizations, veteran organizations, and certain tribal businesses. Self-employed individuals and independent contractors can also apply as long as they meet program size standards. To apply for PPP funding, small businesses can submit an application through an existing SBA 7(a) lender or any other lender that is FDIC-insured (or, for credit unions, NCUA-insured).
Economic Injury Disaster Loans
In addition to forgivable PPP loans for small businesses, the SBA is also administrating Economic Injury Disaster Loans of up to $10,000 for qualifying small businesses. This cash advance can provide a lifeline to businesses experiencing a temporary loss of revenue due to coronavirus closures.
To apply for an Economic Injury Disaster Loan, small businesses with fewer than 500 employees can submit an application through any participating lender. Though these advances are styled as loans, they do not need to be repaid; however, the eligibility guidelines are a bit tighter than those for PPP funds, and the initial funds Congress set aside for this program have already been exhausted.
The SBA is working closely with Congress to extend additional funding for these loans so that more businesses can qualify.3 Those who have already applied may still be able to receive relief, however, as current applications on file are being processed on a first-come, first-serve basis.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
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