On April 8, the National Association of REALTORS® broke down the CARES Act during a Leadership Live Event to help independent contractors and small business owners. Here are some highlights from the Small Business Program portion of that video.
NAR Sr. Policy Representative Erin Stackley: I’m going to be talking, as Shannon (McGahn) said, about two new SBA programs that were created by the CARES Act.
The first is the Paycheck Protection Program or PPP and the second is the Economic Injury Disaster Loan advance grant or EIDL. Both of these are intended to help businesses impacted by COVID-19 and eligible businesses are those with 500 or fewer employees, sole proprietors, independent contractors and the self-employed.
Let’s talk about the Paycheck Protection Program. These loans are administered directly by SBA lenders. So, fill out your application and go through your SBA lender for these. The loan amounts are 250 percent of the average monthly payroll expenses for a business for the previous year, or the average monthly income for independent contractors — and that’s capped at $10,000,000.
The loan should be used over an eight-week period and must be used for one of the eligible uses in the program.
We learned late last week from the SBA that when calculating average monthly payroll costs, businesses should not include pay to independent contractors. As independent contractors are able to apply for these loans for themselves.
The application process opened last Friday, April 3 for small businesses and sole proprietors, and opens this Friday, April 10 for independent contractors and the self-employed.
If the program’s requirements are met, then these PPP loans are 100 percent forgivable; they essentially become a grant from the SBA. Those requirements are that the:
Business uses at least 75 percent of the loan amount toward maintaining payroll costs;
Number of employees stays the same as pre-COVID; and
Total loan amount go towards eligible uses which are payroll expenses, mortgage interest, rent and utilities.
Again, if all those requirements are met, these loans are 100 percent forgivable. However, if an (employer) can’t spend 75 percent of the loan toward payroll costs or if they have to let some of their employees go, the forgivable amount phases out.
Economic Injury Disaster Loan
I’m going to talk now about the Economic Injury Disaster Loans or EIDL advance grants.
Economic Injury Disaster Loans were an existing program within the SBA already. Unlike the PPP loans, these are administered directly through the SBA. So, you apply for them through an application on the SBA website. These loans are available for up to $2,000,000 and are meant to cover working capital needs.
The CARES Act created a $10,000 advance grant within the EIDL program which deploys to borrowers more quickly than the full EIDL they applied for. The $10,000 advance is forgivable if used for one of the eligible uses — payroll expenses, mortgage or rent payment, utilities and other debt obligations that can’t be met due to the crisis.
Businesses can apply for both a PPP and an EIDL loan but if they receive them both, they should be careful with their accounting and their record keeping because they each must be used for separate purposes.
If you get forgiveness under the PPP loan program and you’ve also received the $10,000 EIDL grant, the EIDL grant amount is subtracted from the PPP forgiveness amount.