As a small business owner you no doubt jumped at the chance to get your employees back to work and get your business up and running. And you were probably at your computer reading your application the instant CARES Act loans were available.
And now. Wait.
As banks scrambled to make their policies line up with Congress’ guidelines for the loans, they were also inundated with an unprecedented number of applications. Banks struggled to handle the volume even as they awaited clearer guidance and needed forms from the SBA.
As details of how to approve, how to deliver, and how to forgive are hammered out between the SBA and lenders, money will most certainly run out. Congress is currently attempting to pass a bill for more funding.
As this week has unfolded, details about the various programs have emerged. The Economic Injury Disaster Loan Emergency Advance (EIDL), the up to $10,000 available to small businesses, is considered an advance and there are limits. The advance is on the Paycheck Protection Program – so the amount that a business is funded in the EIDL will be subtracted from the amount distributed after approval. The limit is, according to a report by INC, $1,000 per employee. Unfortunately, the emergency response time of three days has been delayed because of overwhelming response.
The upside is that advance can be rolled into the PPP loan and forgiven in full or part. Current information from SBA site states that what will be forgiven of the loan are payroll costs, interest on mortgages, rent, and utilities – at least 75% of the forgiven amount must have been used for payroll. What will happen if businesses don’t meet the 75% threshold or if part of the loan is used for product, say for a restaurant, to get up and running is unclear.
There are also limits as to what payroll is covered. Current advice says businesses can use the funds for payroll as far back as February 15, 2020 but that businesses can use their own date on the application. And funds must be used to hire back employees or replace positions that were vacated due to the pandemic.