Significant changes to timing, funding of CARES Act loan programs

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted. The CARES Act addresses a multitude of concerns facing the American people during the COVID-19 crisis, including expanded unemployment benefits, the implementation of cash payments to individuals and families, changing the tax return deadline, and more.

Important to non-profits and small business owners, including independent contractors and self-employed individuals, the CARES Act also addresses two loan programs: The Paycheck Protection Program (PPP) and the Economic Insurance Disaster Relief Loan (EIDL). The PPP is a new program created specifically for the crisis at hand; the EIDL guidelines were expanded in response to the COVID-19 crisis.

While the PPP and EIDL have dominated the national news since passage of the CARES Act, new guidance about the administration of the loans and funds available thereunder is updated on a weekly, if not daily, basis.

Importantly, this week, the U.S. Small Business Administration (SBA) released three significant updates regarding both programs:

1. At least $324B of $350B PPP allocated funding already used

This week, the SBA reported that as of 9 p.m. on Wednesday (April 15th), it had approved approximately 1,525,000 PPP loan applications, totaling more than $324 billion, or approximately 90% of the $350 billion allocated for the PPP under the CARES Act. The SBA warned that the remaining allocated funds could be exhausted as early as this week. While banking executives and elected officials have intimated that additional PPP funding may be forthcoming, if you or your business or non-profit is in need of a PPP loan and has not yet submitted an application, it is imperative that an application immediately be submitted.

2. Timing & amount of EIDL “$10K” advance changed 
a. Delayed Advance Funding: As of the beginning of this month, the SBA advertised that businesses and non-profits negatively impacted by the Coronavirus pandemic could apply for an advance of up to $10,000 as a part of their EIDL application. The SBA website explained that the funds, that do not have to be repaid, would be made available to applicants within three (3) days of a successful application, regardless of whether the SBA ultimately granted the EIDL. After many applicants became increasingly frustrated that well more than three days passed with no relief in sight, the SBA changed its timeline to state that the advance of “[f]unds will be made available following a successful application,” without defining how much time will now elapse between application submission and advance funding. While an advance that does not have to be repaid is certainly helpful, the usefulness of the funds is diminished given that they will no longer provide much needed immediate relief.

b. Decreased Amount of “10K” Advance: Due to the high demand for the EIDL advance, this week, the SBA reduced the amount of the advance from the original amount of up to $10,000 per applicant down to $1,000 per employee up to a maximum of $10,000. The number of employees is determined as of the pre-disaster date of January 31, 2020. Although the amount of the advance changed “[t]o ensure that the greatest number of applicants can receive assistance during this challenging time,” many businesses were frustrated by the SBA’s announcement for at least two reasons.
First, and obviously, not only is payment of the advance delayed as discussed above, businesses with fewer than 10 employees will not receive the full $10,000 on which they had planned since the initial announcement of the advance.

Second, and related, the CARES Act extended unprecedented relief to independent contractors and self-employed individuals who were excited about the availability of funds for which they were historically ineligible. While other forms of relief under the CARES Act continue to be available to independent contractors and self-employed individuals, such workers understandably feel overlooked “as always” when it comes to the SBA’s announcement. 

3. Dramatic reduction of maximum EIDL proceeds

At the start of the pandemic, applicants could apply for an EIDL of up to $2 million. This past week, such funding cap was dramatically reduced to “initial loan disbursements for two months of working capital up to a maximum of $15,000 per applicant.” Such amount is in addition to the advance for which the non-profit or small business is eligible, meaning that an entity with at least 10 employees may be eligible for what is now a maximum of $25,000. While such amount may be useful to smaller operations with low overhead, the surprise announcement is a devastating blow to many entities that cannot keep their doors open with a maximum of $25,000 EIDL assistance.

Given the rapid depletion of funds available to help non-profits and small businesses negatively impacted by the pandemic, it is imperative that such entities immediately apply for one or both programs. Otherwise, they risk it being too late and the remaining funds presently available under the programs depleted.

For official guidance and important updates regarding the PPP and EIDL, visit the websites of the SBA (Small Business Administration) and U.S. Treasury Department.

Attorney Melanie S. Griffin, Founder of Spread Your Sunshine, practices law at Shumaker, Loop & Kendrick, LLP

For an overview of these two loan programs and how to apply, listen to The Florida Bar’s Navigating the CARES Act Webinar presented by this article’s author on Tuesday (April 14th). For assistance with this process, Spread Your Sunshine's social media channels and e-newsletter include frequent blog articles and additional posts focused on equipping small business owners and their employees with the information needed to economically survive COVID-19.

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