On April 24, 2020, the Paycheck Protection Program and Health Care Enhancement Act was signed into law. This new legislation replenishes the funds for the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program, as well as allocates funds for hospitals and expanded COVID-19 testing.
This post will focus on the details of the PPP and EIDL replenishment. These are critical sources of funding for small businesses that have been adversely affected by the coronavirus outbreak.
What are the PPP and EIDL programs?
In late March, the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted. Among its many relief provisions, CARES authorized the Small Business Administration (SBA) to manage the PPP and EIDL programs. These loan programs allocated billions of dollars to support businesses across the country that were forced to close after the COVID-19 outbreak.
The business closures resulted in millions of people being furloughed or laid off from their jobs. The funds provided by both programs were intended to help small businesses (typically those with fewer than 500 employees) keep paying their employees and other expenses until they could resume normal operations.
So what happened?
Well, to make a long story short: Both the PPP and EIDL programs ran out of money. And while more than a million PPP loans and nearly 27,000 EIDL loans were distributed, many businesses that applied to the programs didn’t receive any money.
When it became clear that the programs would be inadequate, plans began for another round of funding. This new law—let’s call it the PPP & HCE Act—is that new funding.
Although not perfect, fortunately, the application process has not changed for either program. The SBA will resume accepting loan applications on Monday, April 27, at 10:30am ET from approved lenders.
If you’ve already applied for a PPP loan and received confirmation from your lender that it has been submitted or is ready to submit to the SBA, it shouldn’t be necessary to reapply. However, we recommend confirming the status of your application with your lender. The EIDL program is administered by the SBA directly—not through banks like the PPP—so contact the agency with questions.
Okay, with all that in mind, let’s forge ahead by discussing this new round of funding for each program separately, just to keep things simple.
The Paycheck Protection Program, Part II
They say that the sequel is never as good as the original, and that’s true of the PPP, too—at least from a pure dollar amount perspective. The CARES Act allocated $349 billion to the PPP. PPP & HCE provides for another $320 billion, which is nothing to sneeze at. Still, there is no denying that $320 billion is less than $349 billion.
PPP loans were supposed to be made on a first-come-first-serve basis, but some small businesses alleged that larger banks were prioritizing companies that were seeking larger loans to earn higher fees.
Whether that’s true or not will be for the courts to decide, but ideally, businesses that work with smaller lenders would not be left out in the cold. To avoid that scenario, the new law sets aside funds specifically for smaller banks. Banks and other lenders with less than $50 billion in assets have been allocated $60 billion to secure for their clients.
How do I apply for the PPP?
Fortunately, the new law did not alter this process by one iota. Check out our simple guide to the PPP application process.
And it bears repeating: The loans provided under the PPP are eligible for forgiveness. Any business that receives PPP funds can apply to not pay the loan back—so long as the money is used for approved purposes and you provide the proper documentation. Only 25% of the loan can be used for non-payroll costs if you want the full loan forgiven. Still, that’s a huge benefit, and part of the reason the program has been so popular.
Economic Injury Disaster Loans and Grants
The Economic Injury Disaster Loan program has been a longstanding offering of the SBA. In the past, it has primarily supported businesses suffering losses due to natural disasters such as hurricanes, tornadoes, floods, and the like.
The CARES Act assigned $10 billion to create a new feature to the EIDL program that would advance borrowers $10,000 within three days of receiving their application. These advances were designed to be grants, meaning that they would not have to be repaid. The only catch is that the grant must be spent on payroll, rent or mortgage payments, increased costs for materials and supplies, or paying other obligations that can’t be met due to a loss in revenue.
Needless to say, the grants were popular, and the $10 billion was quickly exhausted even though many applicants didn’t receive the money within the three-day window, or at all. To make matters worse, many seeking EIDL support were told that they might not be able to borrow as much as they needed. Typically, an EIDL borrower could get up to $2 million, but it has been reported that the SBA was only issuing unsecured loans of $15,000 beyond the $10,000 grant.
Fortunately, the PPP & HCE Act replenishes both the EIDL grant and the loan program with $10 billion and $50 billion, respectively.
How do I apply for an EIDL?
Applying to the EIDL program is a little more involved than applying for the PPP. Fortunately, we have broken the EIDL and its grant process down step-by-step, too. One important thing to remember is that a business can only apply for the EIDL grant (the $10,000 cash advance that doesn’t have to be repaid) if it is already applying for a loan through EIDL.
However, if you apply for an EIDL along with the grant and you wind up being denied for the loan portion, you still don’t have to pay back the $10,000 grant if you spend it on approved purposes. So that’s something.
This second round is expected to go quickly, but don’t let that discourage you from applying. Rob Scott, a regional administrator for the SBA, told CNBC that “If someone didn’t qualify or didn’t apply, they should absolutely apply for the second round.”
He also recommended working with lenders that have experience working with the SBA, if possible, and said that community banks will likely be easier to work with than larger banks that have been flooded with customers.
If you haven’t talked to your lender about the PPP, or submitted an EIDL application to the SBA, we recommend you do so, pronto. Check out Gusto’s list of PPP banks and lenders to get started, or apply through a Gusto lending partner.