There are currently two types of loans available for a qualifying small business. The Economic Injury Disaster Loan (EIDL) loan and the Payroll Protection Program Loan (PPP).

Both loan programs are available to businesses with less than 500 employees and meet other qualifications.

The Economic Injury Disaster Loan (EIDL) can be applied for online, it requires that your business have an economic loss and must have been operating as of January 31, 2020. Once completed, it provides for an advance of $10,000, which applicants must request to receive. The advance if requested will be paid to the bank account of the business specified on the application, if requested within 3 business days.

Should the loan be denied after you receive the $10,000 the applicant will not be required to repay the $10,000 advance as long as it is used for the following:

  • Providing paid sick leave to employees unable to work due directly to the effects of COVID-19.
  • Maintaining payroll during business disruptions or substantial slowdowns.
  • Meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains.
  • Making rent or mortgage interest payments
  • Repaying obligations that cannot be met due to revenue losses.

Personal guarantees have been waived for loans of less than $200,000.

There is also no requirement to try and obtain credit elsewhere.

Applications may be approved based solely on the credit score of the applicant and will not require submission of tax returns.

The application for these loans can be found at https://covid19relief.sba.gov/#/

Payroll Protection Program Loan (PPP) is applied for at your bank or other SBA lender, by eligible business. Eligible businesses includes businesses with less than 500 employees, including self-employed individuals, independent contractors and sole proprietorships, without regard to the income of the owners or the income of the business itself.

The recipient of the loan is required to make a “good faith certification” that:

  • the uncertainty of the current economic conditions makes the loan necessary to support the ongoing operations of the business
  • that the funds will be used to retain workers, maintain payroll, make mortgage payments, lease payments, or utility payments
  • that the business has not already received a loan under this program.
  • In determining the number of employees for purposes of loan eligibility, employees include all individuals employed on a full time, part time or other basis.
  • For the food service industry, the employee limitation is applied only for each physical location, and as long as each physical location has less than 500 employees the business is eligible for the loan.
  • For all other businesses, the employee limitation includes all employees regardless of their physical location. The loan is required to be a non-recourse loan with no personal guarantees.
  • No collateral is required in order to receive a loan.
  • The business does not have to make a certification that the business cannot obtain credit elsewhere.
  • Each business can receive a loan up to the lesser of (1) $10,000,000 or (2) 2.5 times the average monthly payroll costs incurred during the one year period before the date on which the loan is made.
  • For seasonal businesses, the average monthly payroll costs is calculated using either (1) the 12 week period beginning February 15th, 2019, or (2) March 1, 2019 through June 30, 2019.
  • For employers that were not in business from February 15th, 2019 through June 30, 2019, the calculation is made using the average monthly payroll costs incurred January 1, 2020 through February 29, 2020.

Payroll costs are defined to include the following:

  • salary, wage, commission, or similar compensation
  • payment of cash tip or the equivalent
  • payment for vacation, parental, family, medical or sick leave
  • allowance for dismissal or separation (severance pay)
  • payment required for the provisions of group health care benefits, including insurance premiums
  • payment of any retirement benefit
  • payment of state or local tax assessed on the compensation of employees
  • For sole proprietors and independent contractors payroll costs also include the sum or any compensation or income to such individual that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as prorated for the covered period (February 15, 2020 through June 30, 2020).

Payroll costs do not include:

  • compensation in excess of an annual salary of $100,000
  • Federal taxes imposed or withheld for income, Social Security, Medicare, or under the Railroad Retirement Tax Act.
  • Compensation of an employee whose principal place of residence is outside of the United States
  • Qualified sick leave or family leave for which a credit is allowed under the Families First Coronavirus Relief Act.

During the covered period (February 15, 2020 through June 30, 2020) the loan can only be used for:

  • payroll costs
  • costs related to the continuation of group health care benefits during period of paid sick, medical, or family leave, and insurance premiums
  • employee salaries, commissions, or similar compensations
  • payments of interest on any mortgage obligation (but not principal payments)
  • Rent
  • Utilities
  • interest on any debt obligations that were incurred prior to February 15th, 2020

Loans received under this program are forgivable to the extent that the proceeds are used during the eight-week period following the origination of the loan for:

  • payroll costs
  • payment of interest on mortgage obligations incurred prior to February 15th, 2020
  • rent obligations for leases entered into prior to February 15th, 2020
  • utility payments
  • If a business receiving a loan reduces their number of employees or the amount of compensation paid to such employees by 25%, then the amount eligible for forgiveness is also reduced.

In order to receive the forgiveness, the employer must submit an application to the lender that includes certain documentation and certifications.

Amounts forgiven are not included as income under IRS Code Section 108 for cancellation of indebtedness, and it appears that employers can continue to deduct the payments of salary, rent, interest and utility payments as trade or business expenses even if the business is technically not paying anything out of pocket.