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The COVID-19 pandemic forced many organizations to close quickly and lose revenue for an extended period of time, putting their ability to stay in business at risk.  Many businesses did not have enough cash reserves to sustain the shutdown and unfortunately went out of business. Other businesses are hanging on by a thread. To attempt to help those businesses impacted, the federal government introduced two popular lending programs: The Paycheck Protection Program and the Economic Injury Disaster Loan (PPP and EIDL).

We know it’s complicated and difficult for many owners to manage this process, in addition to keeping your businesses afloat.  We are here to help you manage your business during these challenging times.   

Paycheck Protection Program (PPP)

The Paycheck Protection Program provides loans to small businesses that have been impacted by COVID-19.  The purpose of the program was to allow businesses to retain employees, cover payroll, and certain other expenses. 

Key Components of the Paycheck Protection Program:

  • Business must have 500 or fewer employees*
    • This includes: Non-Profits, Veterans Organizations, Tribals, Self-Employed Individuals, Sole-Proprietors, and Independent Contractors
    • * Businesses with more than 500 employees are exempt in certain industries
  • Initially, the loan had to be used for payroll-related costs over an 8-week period, but the legislation was modified to allow the use of the funds over 24 weeks.
  • Payroll Costs include:
  • Employee gross pay including:
    • Salary
    • Wages
    • Commissions
    • Bonuses and Tips
    • Capped at $100,000 annually per employee over the covered period (with certain limits for owner-employees)
      • 8 Week Covered Period: Salary Capped at $15,385
      • 24 Week Covered Period: Salary Capped at $46,154
      • Employer state and local taxes paid on employee gross pay (e.g. state unemployment insurance and state disability insurance)
      • Employer-paid healthcare benefits
      • Employer-paid retirement benefits
    • Other non-payroll costs for which the loan can be used include:
      • Interest on Mortgages
      • Rent
      • Utilities 
      • Transportation
    • Businesses now have the option of using an 8-week covered period or a 24 week covered period  (if your loan was disbursed prior to June 5, 2020, you can choose an 8-week period)
      • Covered Period must be earlier of 24 weeks or December 31, 2020

    PPP Loan Forgiveness

Full loan forgiveness may be obtained if:

  • 100% of the proceeds are used and at least 60% used on payroll costs
  • If less than 60% of the funds are used on payroll costs, the amount of loan forgiveness may be reduced proportionately and will be required to be paid back.
  • Staffing levels are maintained or if payroll cuts have been made employees are hired back by the end of the covered period
  • Average # of full-time equivalent employees (FTEs) during the covered period or alternative covered period must at least be equal to the average number of FTEs during the period of 
    • February 15, 2019, thru June 30, 2019; or
    • January 1, 2020, thru February 29, 2020

*If the number of FTEs is lower during the covered period or alternatively covered period compared to these two periods, the loan forgiveness amount may be reduced proportionately.  

*Safe Harbor Provision: FTE reductions that took place between February 15, 2020, thru April 26, 2020, will not reduce the amount of loan forgiveness if the FTEs are brought back to at least the same level by December 31, 2020.  However, if the FTE reduction was made prior to February 15, 2020, or after April 26, 2020, the loan forgiveness amount may still be reduced.

  • Pay levels are maintained
    • If an employee’s average annual salary or average hourly wage (for hourly workers) is reduced by at least 25% during the covered period, the loan forgiveness amount may be reduced*
    • * The reduction of 25% does not apply to employees who earn more than $100,000

NOTE: This summary provides a broad overview of this topic and does not address the nuances within each facet of this program. 

CFO Strategies is working with clients through this unprecedented situation and is available to work with you on the following: 

  • The application process to obtain a PPP Loan, including supporting schedules and application documentation
  • Tracking analysis of the expenditures and tracking the number of dollars spent on payroll vs. non-payroll costs
  • Tracking amount of dollars left to be used on the loan 
  • Tracking FTEs
  • Building Financial reports for ownership on compliance with terms of the loan
  • Application for Loan forgiveness

Economic Injury Disaster Loan (EIDL)

In response to the COVID-19 pandemic, the Federal Government, through the Small Business Administration (SBA) has made Economic Injury Disaster Loans (EIDL) available to small businesses who are losing revenue as a result of the pandemic.  This program is open to small businesses, non-profits (including private institutions and charitable organizations). The purpose of this loan is to help companies cover working capital and operating expenses. 

Key Components of the EIDL Program:

  • To be eligible, your business must have suffered “substantial economic injury,” in other words suffered a loss due to COVID-19
  • Your business must be considered a “small business” under the SBA’s classification, which uses the NAICS Code
  • The following businesses are eligible for an EIDL:
    • Any business under 500 or fewer employees
    • An individual operating as a sole proprietor or independent contractor
    • Any cooperative, ESOPs (Employee Stock Ownership Plans), and tribal small business concern with 500 or fewer employees

*When calculating the size of your business for EIDL purposes, you must include the annual revenue and number of employees from your affiliates, both domestic and foreign. 

How To Use EIDL Funds?

Similar to the paycheck protection program (PPP), the EIDL’s funds must be used in a specific way. 

Here are some of the ways the funds CAN be used:

  • Working capital
  • Paying fixed debts
  • Accounts Payable
  • Other (you can use these funds to pay other bills that would have been paid had the interruption not occurred)
  • Payroll*** (If you have a PPP loan, you cannot use both loans for payroll)

The EIDL CANNOT be used to:

  • Increase the profits of the company and replace sales
  • Consolidate long term debt
  • Fund improvements, expansions, and other similar opportunities
  • Cover expenses already covered by the PPP loan

What are The Terms of the Loan?

  • The maximum amount of a loan is $2,000,000, however, due to high demand the SBA set a new maximum a business can receive at $150,000
  • The maximum term of the loan is 30 years
  • The interest rate is 3.75% for small businesses and 2.75% for non-profits
  • The EIDL does not require personal guarantees for loans below $200,000

*In processing the loan, the SBA must make a determination that the company has the ability to repay the loan. 

If I received both PPP and EIDL Loans, does my company have to refinance?

According to the SBA:

  • An EIDL loan cannot be refinanced with a PPP loan if the EIDL loan was received before January 31, 2020, or after April 3, 2020
  • An EIDL can be refinanced with a PPP loan if the company received the EIDL funds between January 31, 2020, and April 3, 2020, and used the PPP loan funds for purposes other than payroll costs. 
  • An EIDL must be refinanced if a company received an EIDL loan between January 31, 2020, and April 3, 2020, and used the PPP loan funds for payroll costs. 

NOTE: This is not an exhaustive list of all the key components and issues that need to be addressed when applying and staying in compliance with an EIDL loan.  This summary just provides a broad overview and does not address the nuances within each topic of the program.

Which loan is right for me?

Many companies will have options in deciding which loan is best for them. For some companies it will be the PPP, for others, it will be the EIDL, and in some cases, both may be the right path for organizations.  

CFO Strategies is available to help you with the following: 

  • The application process to obtain an EIDL
    • Including supporting schedules and application documentation
  • Tracking analysis of the expenditures and tracking the number of dollars spent 
  • Tracking amount of dollars left to be used on the loan 
  • Financial reports to ownership on compliance with terms of the loan
  • Ensuring compliance with the terms of the loan

CFO Strategies is helping clients navigate these uncharted waters in determining the right program.  For more information about recommended steps and a diagnostic of which loan is best for your company’s needs, please contact us. 

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