The Coronavirus Aid, Relief, and Economic Security Act or CARES ACT for short is a record breaking 2 trillion dollar stimulus bill designed to curb the devastating economic impact of the COVID19 pandemic. Few small businesses are ever prepared to survive a complete months-long shut down of the economy. On March 27th, Congress, understanding the mounting pressure faced by small businesses, passed the Act.

 

            Nestled within the CARES Act is over 350 billion dollars of allocated capital available to struggling small businesses. The Act provides several different mechanisms that small businesses can rely upon. The relief efforts provided by the Act include the newly created Paycheck Protection Program, SBA Bridge Loans, temporary SBA Debt Relief, and Economic Injury Disaster Loans. It’s important to first figure out which option is best suited to support your business through this unprecedent situation.

 

            The answer to this question will likely turn on the size of your business and the number of employees you currently have. Right now, many larger small business are in desperate need of capital to cover the enormous cost of retaining all of their employees throughout the duration of the crisis. While some smaller small businesses need a quick jolt of cash to get them through the next few months.

 

            This article is devoted to the latter. If your small business functions with a small number of employees and you are in need of a fast influx of cash to pay your mortgage or rent just to keep the lights on, then this relief option may be perfect for you.

 

Economic Injury Disaster Loans (EIDL Loans)

 

            Let’s start with what I believe will end up being the most effective option for the majority of small businesses. Economic Injury Disaster Loans are not a new phenomenon. They have existed for some time in the event of a disaster. However, the new CARES Act explicitly designates the current COVID19 pandemic as a qualifying disaster. The EIDL loans offer small businesses extremely favorable terms. The loan duration is for 30 years with a 3.75% interest rate for small businesses, and a 2.75% rate for non-profits. Moreover, the first month's payment is deferred for a full year from the date of the loan. In other words, you won’t have to make a payment for one year after you are approved for this type of loan. This grace period will end up being critical for most small businesses.

 

            Despite the great terms described above, they are not the most intriguing part of the option. Instead, the most appealing aspect of these EIDL loans is the option for a 10,000 dollar cash advance. It’s probably more appropriate to think of this cash advance as a grant because the amount carries the possibility of being forgiven. This amount can be forgiven if it is spent on very specific purposes such as paid leave, mortgage payments, rent payments, maintaining payroll, utility payments, or increased costs due to supply chain disruption. For most, the idea of up to a 10,000 dollar grant to cover the cost of rent or a business mortgage can be the difference between the closing of doors or survival.

 

            The SBA has streamlined the application process and now applicants can be approved solely on the their credit score. Access to the relief program has been expanded to cover sole proprietors, independent contractors, and all non-profits with fewer than 500 employees.

 

            If you need assistance navigating this complex terrain, the Pickett Law Group is offering small business assistance to those applying for EIDL loans. We will handle the application process for you, so you do not have to worry. In times like these, urgency is critical, so applying quickly should be a priority.

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