The CARES Act
The CARES Act, passed 3/27/20, is a $2 trillion coronavirus relief/economic stimulus bill that provides debt forgiveness and creates two loan programs for small businesses, the Paycheck Protection Program Loan and the Economic Injury Disaster Loan (EIDL), also known as an SBA Disaster Loan. You can apply for both, however, not for the same use of loan proceeds.
Debt Forgiveness for Current Borrowers
The SBA is to make the loan payments for six months on 504 loans in regular servicing and not on deferment beginning with the first payment due after the enactment (i.e., April 1).
Those 504 loans on deferment on the date of enactment of the CARES Act will receive the loan payments for six months after the deferment ends.
SBA payments will be made NO LATER THAN 30 days after the date on which the first payment is due. The first payment is due April 1, thus SBA has until April 30 to make the payments on behalf of 504 borrowers.
For 504 loans, this debt forgiveness applies ONLY to the SBA second mortgage, it does not apply to the first mortgage. You do not need to request these payments – they will be made automatically.
Paycheck Protection Program Loan
CARES expands the SBA 7(a) program with PPP Loan – specifically designed to enable businesses to retain their employees during this time of crisis and uncertainty. The U.S. Treasury Department’s website is a great source for comprehensive information.
- Apply directly to an SBA 7a lender: Please reach out to your bank of account or to the lender that provided you with your 1st mortgage. TMC will accept applications from existing borrowers only.
- Eligible Businesses – defined as those with fewer than 500 employees, including 501(c)(3)s, that were operational on, or before Feb. 15, 2020
- Loan amount – 2.5 times your average monthly payroll over the past 12 months, up to maximum of $10 million. TMC cannot accept requests for more than $250,000.
- Other terms – rate 1% fixed, 2 year term, no fees, no prepayment penalty, no personal guaranty, no collateral
- Use of loan proceeds – payroll, health benefits, rent, mortgage payments (limited to interest no principal) and utilities. This loan is designed to help you retain your employees and keep a roof over your head.
- Payment deferment – all loans will have payments deferred for at least the first 6 months
- Loan forgiveness – the amount used for eligible uses listed above in an 8-week period during the “covered period” ( February 15 – June 30,2020) will be forgiven. The government will write a check to the lender for that amount.
- In the event not all of the original loan was used for the purposes above, the remainder will be turned into a 2-year term loan with the same .5% interest rate.
Economic Injury Disaster Loans (EIDL)
aka SBA Disaster Loan: Must apply through the SBA NOT through TMC
The SBA’s Economic Injury Disaster Loan program provides small businesses with low interest working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
- Loan amount – up to $2 million
- Use of proceeds – may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.
- Who is eligible – businesses that meet SBA size standards and non profits with less than 500 employees adversely impacted by COVID-19
- Interest rate – 3.75% fixed for businesses, 2.75% fixed for nonprofits
- Term – up to 30 years
- Collateral/personal guaranty – none
How to Apply
The Economic Injury Disaster Loan application continues to evolve rapidly. The SBA website currently shows a simplified EIDL application process with a streamlined online application. Please note, their website has experienced periods of time when it is not available.
The SBA estimates the applicant can receive funds in as little as two months. You can request a modification (increase) to the loan, if the situation changes. For example, if your business needs to stay closed longer than anticipated, you can then apply for an increase to the loan.
Emergency Economic Injury Grants of $10,000
- SBA will advance a $10,000 Grant, if requested, within 3 days of applying for EIDL
- You are eligible for an advance of up to $10,000, whether or not you are approved for an EIDL
- This is a grant and does not need to be repaid under any circumstances
Help and Resources
The SBA has created some documents that we found to be very helpful. Please review the resources below to give you a better understanding of the CARES Act and the EIDL.