Overview of new business aid under the federal CARES Act

Enacted on March 27, the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act establishes three new relief resources for small business owners, administered by the US Small Business Administration (SBA). 

Economic Injury Disaster Loan

Available now, the Economic Injury Disaster Loan (EIDL) is a lower-interest loan up to $2 million for small businesses, independent contractors, and private nonprofits, with principal and interest deferment available for up to four years.

• The EIDL provides for an emergency advance of up to $10,000 within three days of application
• Any emergency advance received does not need to be repaid under any circumstance
• The EIDL may be used for payroll costs, sick leave, increased production costs, and operational costs, including rent and mortgage
• EIDLs are available through 12/31/20

Paycheck Protection Program

The Paycheck Protection Program (PPP) is a 100% federally-guaranteed loan of up to $10 million that will enable small business owners, nonprofits, and other eligible employers – including sole proprietors, independent contractors, and certain self-employed individuals – to maintain their workforce and salary levels during the federal emergency. 

• To qualify for full forgiveness, 75% of loan must be used on payroll costs 
• Remaining funds may be used for mortgage interest, rent, utilities, and other operational costs
• Applications will be made through existing SBA (7a) lenders or federally-insured depository institutions or credit unions
• Lenders may begin processing applications Friday, April 3; sample applications are available here
• PPP loans are available through 6/30/20

EIDL recipients may also apply for a PPP loan. If they do receive a PPP loan or refinance an EIDL into a PPP loan, any advance amount received via the EIDL would be subtracted from the amount forgiven in the PPP. An EIDL may not be used for the same purpose as a PPP loan. For example, if an EIDL is used for payroll costs for certain workers in April, a PPP loan may not also be used for payroll costs for those same workers in April; however, the PPP could be used for payroll in a different month or for different workers. 

Debt Relief

The SBA will also provide immediate relief to small businesses with non-disaster SBA loans through its new Debt Relief Program, by covering all payments, including principal, interest, and fees, for six months on current 7(a) loans and new loans issued before September 27, 2020. The SBA offers a variety of 7(a) loans to assist small businesses. 

Independent Contractors

Independent Contractors are eligible for both the EIDL and PPP loans.  It is our understanding — in the absence of clear guidance on the specific point — that in the context of a business that uses a number of independent contractors to run its operations, the contractors must apply for these loans on behalf of themselves. 

For more information, please refer to the Small Business Owner’s Guide to the CARES Act prepared by the US Senate Committee on Small Business & Entrepreneurship and the CARES ACT Q&A prepared by the US House of Representatives. 

To contact the SBA’s Massachusetts District Office directly, click here.