Navigating & Prioritizing the CARES Act – Part 1

By April 3, 2020Blog

Two loan opportunities made available under the new CARES Act (the Coronavirus Aid, Relief, and Economic Security Act) require quick action–possibly even yet today: the Paycheck Protection Program (PPP) Loan and the Economic Impact Disaster Loan (EIDL) Program. 

Paycheck Protection Program (PPP) Loan

The PPP Loan is available for eligible 501(c)(3) public charities, 501(c)(19) veterans organizations, and small businesses with 500 employees or less. This loan program is intended to sustain organizations and their employees negatively impacted financially by the current COVID-19 crisis. The proceeds of these loans can be used to cover payroll costs, two months of rent, mortgage payments, and/or utilities, and interest payments on existing debt. 

These loans are initiated with and administered by your bank and can be for a principal amount that is the lesser of $10m or 2.5 times the organization’s average monthly payroll costs for the previous 12 months. 

Some or all of the principal amount of the PPP loan can be forgiven depending on the amount of the loan used for payroll costs and the degree to which the organization can keep employees on the payroll for 8 weeks form the start of the loan. Only loan proceeds used during that first 8 week period are eligible to be forgiven. Remaining balances will have a 2-year term at a 0.5% interest rate.

PPP Loan applications should be available today, April 3rd. If you have any interest in applying or exploring if this loan is right for you or your organization, don’t wait. Get started on the application and talk to your banker today. 

Economic Impact Disaster Loan (EIDL) Program

Unlike the PPP Loan that originates with your banker, EIDLs originate with and are administered by the Small Business Administration (SBA). Additionally, EIDLs are available to a broader segment of nongovernmental nonprofits including 501(c)(3), (c)(4), (c)(5), and (c)(6)s and are, it appears, able to be used for a slightly broader list of operating expenses. The maximum possible loan is $2m for organizations that can demonstrate substantial economic injury as a result of the COVID-19 crisis. 

Eligible nonprofits and small businesses are given the opportunity to seek an immediate $10,000 advance that is distributed within 3 days of application. The $10,000 is forgiven even in the event the organization is ultimately denied its EIDL Loan. EIDL’s charge a higher interest rate of 2.75%. 

In the event your organization is facing or anticipating a crisis, you may want to consider starting the application today with the SBA. Some EIDL eligible organizations may qualify for a PPP Loan as well which is fine so long as EIDL proceeds are not used for PPP purposes.  

David Baker

Author David Baker

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