The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on Friday, March 27, 2020. With over $2 trillion in federal funding, it is the largest financial assistance package ever passed by Congress. The Act includes expansions to the Economic Injury Disaster Loan (EIDL) program that Atrómitos featured in a recent article. Here is a run-through of the CARE Act provisions that were aimed at expediting the application process and providing a larger pool of small businesses with access to disaster funding for COVID-19:
Applications will be approved using the applicant’s credit score and will not require a tax return. Prior to the CARES Act, EIDL applicants had to demonstrate the ability to repay the loan.
EIDLs less than $200,000 will NOT require a personal guarantee. Prior to the CARES Act, to secure an EIDL, anyone who owned 20 percent or more of the business applying for the loan had to sign an SBA loan personal guarantee. This personal guarantee authorized the lender to seize personal assets to repay the loan if the assets of the business were not sufficient to cover loan payments.
Borrowers will not be required to put up real estate as collateral. Rather lenders will take a general security interest in the business property for loans under the $200,000 threshold.
Applicants are eligible to receive up to $10,000 as an advance emergency cash grant. These emergency grants will be made available within three days of a successful application. And applicants can get emergency cash even if they don’t qualify for additional funds. Finally, advances do not have to be repaid if spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments, or repaying obligations that can not be met due to revenue loss.
Expands the pool of eligible COVID-19 EIDL applicants. Includes sole proprietors or independent contractors, as well as tribal businesses, cooperatives, and ESIPs with fewer than 500 employees and all non-profits including 501(c)(6)s.
The SBA has created a separate online application for COVID-19. The application implements these policy changes and streamlines the process by allowing applicants to make self-certifications to verify the applicant is an eligible entity. The SBA estimates the full online application will take two hours and ten minutes to complete, although every entity may not need to complete all parts.
It is still unclear how it will take for the SBA to approve applications. Given the current unemployment statistics, it is clear that the demand for these funds will be high and therefore we recommend that small businesses and non-profits apply as soon as possible.