Last updated on March 29th, 2020

 

Michelle here, owner and founder at G & G Law. I spent my Sunday staying at home and analyzing the small business provisions of the federal coronavirus relief package just signed. In addition to educating myself so I can better serve our clients, I’m wondering if I should apply for loans or grants for my own small business. This is in notes form, but I wanted to get it up quickly. I know most business owners are going through a similar decision process.

Here’s what my goals are while evaluating the options:

  1. Goal #1: Avoid making commitments to pay back money that will hurt my business more than help it, in the long run. I’m looking for grants or forgivable loans.
  2. Goal #2: Avoid tons of strings attached and hoops to jump through. Make sure I’m able to prioritize the sales and operations activities that are necessary to business survival, not to mention the reason we exist.
  3. Goal #3: Avoid personal guarantees.

Based on these goals and my analysis, I’m planning to apply ASAP. In particular, it contains emergency Economic Injury Disaster Loans for $10,000 that I hope to receive.

I read that the federal aid package (the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act)t provides for small business loans that are forgivable, so I’m looking into this one first.  It was signed by the president on March 27th, 2020. You can find the text here. Here’s my summary of the small business loan section:

 

Sec. 1102. Paycheck Protection Program

  • Eligibility:
    • Business or non-profits with < 500 employees (seems like there might be wiggle room by the Administration to increase for certain industries?)
    • Self-employed individuals, independent contractors, and sole proprietors may be eligible
  • Maximum Loan Amount is lesser of either:
    • $10M; or
    • The sum of:
      • 2.5 x average monthly payroll costs for previous year (seasonal employees have different calculation) *This is all that would apply to my business. 
        • If payroll was ~$14,000/month, Loan Max = ~$35,000. If payroll was ~$26,000/month, Loan Max = ~$65,000
      • Outstanding amount of a loan under (b)(2) [need to get more info about this if needed]
  • Allowable uses:
    • Payroll costs (doesn’t include compensation for employees making $100k+ or living outside the U.S.)
    • Continuation of healthcare benefits
    • Employee salaries, etc.
    • Mortgage interest
    • Rent
    • Utilities
    • Interest on previous loans
  • Waiver of personal guarantee:
    • No personal guarantee required
    • No collateral required
  • Interest Rate
    • 4% or less

 

Sec. 1106. Loan Forgiveness

  • Available for sum of payroll costs, mortgage interest, rent, utilities
  • Can’t exceed principal
  • Reductions:
    • Reduced by average number of employees during the covered period divided by either:
      • Average number of employees 2/15/2019 – 6/30/2019; or
      •  Average number of employees 1/1/2020 – 2/29/2020
    • Reduced by any reduction in total salary or wages more than 25% of total salary or wages
    • For both situations above, no reduction in forgiveness of loan if employee or wage reduction occurred between 2/15/2020 – 4/26/2020 and that reduction is eliminated (# of employees hired back or wages back up) by 6/30/2020.
  • Must include extensive documentation of payments for forgiveness.

 

Sec. 1110. Emergency EIDL Grants

  • Amount: $10,000
  • Use:
    • Sick leave
    • Maintaining payroll
    • Increased costs related to supply chain disruptions
    • Rent or mortgage payments
  • Repayment: NOT required to repay, even if loan application denied
  • Timeline:
    • Can apply based just on credit score
    • Paid within 3 days of loan application
  • Relation to Sec. 1106 Forgiveness: The $10,000 is subtracted from loan forgiveness

 

My Conclusion

It makes sense to apply, if only for the $10,000 emergency grant for now. This will provide some time to see how my business will continue to be affected. 

I’m reaching out to WBDC (Women’s Business Development Center) to get the process going. 

Note this was a really quick outline and summary – I mostly put it together for my own purposes, but thought other business owners would appreciate the info. Please check back at our website for more updates and details. 

Take care,

~Michelle

 

For more details and additional information, check out our aggregated and updating list of COVID-19 Business Legal Resources.

If your business has hit trouble because of the pandemic and you need guidance, the attorneys at G & G Law have assembled a toolkit of accessible, easy-to-digest information that answers many common questions we’ve received from our clients. You can read more about it and purchase it here.