CARES Act Frequently Asked Questions

The Basics

What Financial Relief Programs are offered under the Act?

The CARES Act has two financial relief programs built into the Act. The first is the Paycheck Protection Program (PPP) and the second provides expanded uses of the Small Business Administration’s (SBA) Economic Injury Disaster Loans (EIDL).

Paycheck Protection Program
The Paycheck Protection Program (PPP) provides funds to businesses with 500 or fewer employees to pay up to 24 weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent and utilities.

Businesses can start applying through an existing Small Business Administration (SBA) 7(a) lender or a federally insured institution for the PPP on 4/3/20. Starting 4/10/20, independent contractors and self-employed individuals can apply. The SBA has encouraged businesses to apply as quickly as possible because there is an overall funding cap on the program.

Economic Injury Disaster Loans (EIDL)
The Small Business Administration is offering low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19).

The EIDL is a low-interest, fixed-rate loan that can provide up to $2 million in assistance for a small business. SBA’s Economic Injury Disaster Loan (EIDL) funds come directly from the U.S. Treasury. Applicants apply directly through the SBA’s Disaster Assistance Program.

What companies are eligible for the programs?

You could be eligible for either program if you are a business with fewer than 500 employees. The threshold includes all employees, meaning full-time, part-time and other contract employees could count toward the 500-ceiling threshold.

When did I have to start my business to be eligible?

To be eligible for the EIDL a company had to start the business by 1/31/20 and for the PPP a company had to start the business by 2/15/20.

When should I apply?

You should apply immediately. Both programs are on a first-come, first-serve basis. It is wise to connect directly with the SBA for the EIDL and your local lending institution to work on a PPP application.

Can I submit applications for the EIDL and PPP at the same time?

Based on the guidance received, it appears that a borrower can submit applications for both programs. It is, however, unclear at this time if a borrower could be awarded loans under both programs.

It is also worth noting that a borrower may consolidate an existing EIDL into the PPP and the Department of Treasury has specific guidance on how to treat an EIDL Advance under the PPP.

Finally, it has been recommended that companies apply for both programs and that there is no obligation to take the loan even if approved, meaning companies can learn more about the benefits of each program and then make an informed decision on whether to move forward with a loan under either program.

Do my employees need to be back at work? What if we are not working due to Michigan’s “Stay Home. Stay Safe.” Order?

No, the employees just need to be back on the payroll.

Understanding the Paycheck Protection Program

What are lenders looking for from a company applying for a PPP?

Companies will need to complete the PPP application and have all payroll documentation. Lenders may also ask for a good-faith certification that the loan is necessary to support the ongoing operations; the borrower will use the funds to retain workers and maintain payroll, mortgage, lease or other utility payments; and that the borrower does not have a duplication loan for the same purpose or has applied for the same loan.

How much can be borrowed?

The PPP allows for a company to receive up to 2.5x or 250% of the borrower’s average monthly payroll costs. This amount, however, cannot exceed $10 million.

It is important to note that certain items are excluded from payroll calculations including any compensation over $100,000 per employee; payroll taxes, income taxes, compensation for an employee who resides outside the United States; and qualified sick leave or family leave wages which are allowed under the Families First Coronavirus Response Act.

I heard the PPP is a forgivable loan, is that true?

Yes, to an extent. Under the CARES Act, a PPP loan borrower may be eligible for loan forgiveness for certain eligible costs. Those costs include payroll, rent, utilities and certain interest on debt.

As guidance continues to be issued, eligibility could change, but as of the opening of the program on 6/8/20 whatever is spent in the 24 weeks (Until 12/31/20) of the program for those eligible costs could be forgiven so long as 60 percent was attributed to payroll costs.

What happens if some of my employees already applied for unemployment?

The main goal of these programs is to bring people back on the payroll for companies even if they are not currently working. Under the PPP, a borrower must bring the employee back into employment and pay the employee even if they do not work.

What happens if the laid off employee refuses the option for rehire? Will it reduce my loan forgiveness amount?

No. the Small Business Administration and Treasury released new guidance on 5/13/20 noting that there will be an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.

Can the PPP loan be used for operation costs like software and tools?

No. The PPP loan can only be used for payroll costs, rent, mortgage payments and utilities for facilities where the borrower is making either rent or mortgage payments.

Will I be negatively impacted or am I ineligible for a PPP if I already have an SBA loan?

An existing SBA loan doesn't make you ineligible. In fact, the principal and interest payments on any existing SBA loans will be suspended for six months, meaning the program will ensure additional relief.

Understanding the Economic Injury Disaster Loans

How do I apply for an EIDL?

A company can apply directly for an EIDL at disasterloan.sba.gov where there is a streamlined online application. The SBA will require information on gross revenues, costs of goods sold, lost rent, cost of operating expenses, other reimbursements received (i.e., business interruption insurance) and the number of employees working for the company.

The SBA may request other information including, an SBA loan application, personal finance statements and a schedule of liabilities, among others.

How much can be borrowed?

The SBA allows a company to apply for an up to a $2 million EIDL, as well as a $10,000 EIDL Advance, capped at $1,000 per employee. The EIDL Advance will be awarded and made available after a successfully completed application.

Is the EIDL forgivable as well?

No. The EIDL is an unforgivable SBA Loan. The CARES Act does, however, provide that any EIDL Advance that was awarded to a company when applying for an EIDL will be forgiven. Please note that the EIDL Advance will be forgiven even if a company does not move forward with an EIDL.

Are the eligible uses the same for an EIDL as the PPP?

No. The EIDL has a much broader scope of eligibility and goes beyond working capital and can be used to cover other costs incurred by the borrower. The EIDL is limited to $2 million per borrower though, a much lower cap than the PPP.

The SBA does have some limits on the uses for EIDL loans. The prohibited uses include paying down or paying off loans owned or provided by a federal agency of Small Business Investment Company; payments of any direct federal debt, except IRS obligations; and relocation costs.

A borrower should work directly with the SBA to best determine eligibility and allowable uses.