Many business owners and nonprofit organizations were left in a state of limbo late last week as a result of the PPP Loan Program using up the complete $349,000,000,000 allocated as part of the CARES Act. However, on April 21, 2020, reports have come out on an agreement among congressional leaders to replenish the funds for the popular program.
On Tuesday afternoon, the “Paycheck Protection Program and Health Care Enhancement Act” was unveiled, revealing an additional $310,000,000,000 in funding to the SBA to allow more businesses and nonprofit organizations to obtain these loans. Of this funding, at least $60,000,0000,000 is to be used by “smaller” banks with less than $50,000,000,000 in assets, thereby in theory increasing their access to the program. The bill is expected to be passed by the Senate on Tuesday afternoon during their pro-forma session and then hopefully by the House on Wednesday. This could mean that loans could be available for organizations as soon as Thursday or Friday of this week.
Many banks have continued to process received applications during this lull, which means that companies or organizations that were shut out of round one could be on the fast track for when the new funding ultimately becomes available. However, estimates from industry experts have indicated that this level of funding may only provide a short-term relief and could still leave borrowers unable to get funding. As a result, we still recommend interested organization continue to work through the process with their bankers and to apply as soon as possible.
The new Act does not provide any more insight or changes into the potential forgiveness of the loans nor do there appear to be any other material changes to the program other than the increased funding. The loans are still limited to companies or organizations with less than 500 employees or otherwise meet the SBA size standards (click here for more information on the 500 employee exception rules).
Finally, the Act includes an additional $10,000,000,000 of appropriations to the Economic Injury Disaster Loan (EIDL) Emergency Grants. These grants were first authorized under the CARES Act and initially were going to provide $10,000 grants to businesses and nonprofits that applied. However, the high demand for these relief grants leads to changes in the program, limiting the grants to $1,000 per employee, up to $10,000. The program terms state a company can apply for both an EIDL and a PPP Loan, so long as the funds are not used for the same purpose. Our advice has been to focus on the PPP Loans as they offer better terms and a faster turnaround, and even with the guidance that both are acceptable given the fluid nature and rapid changes, we felt it best for our clients to first secure the PPP funding before moving on to any EIDLs.
Edward McWilliams, CPA
Ed is a Partner in the firm’s tax and business advisory practice focusing on providing services to middle market private companies across different industries as well as to early stage startups. Ed has over a decade of experience providing tax and business consulting services to these companies of different sizes and across different industries, bringing a broad and diverse knowledge base and strategic solutions to the many complex issues that businesses face.