SBA Disaster Loan Assistance and Preparation Q&As
Economic Injury Disaster Loan (EIDL)
What is the Economic Injury Disaster Loan (EIDL) and how do I know if I qualify for it?
The EIDL is a section 7 loan specifically tied to economic injury caused by a disaster and is handled through the SBA. This loan is available to businesses with fewer than 500 employees that have been adversely affected by COVID-19.
How do I prove that my business has been affected by COVID-19?
In addition to tax return documentation, payroll records, and a copy of your 2019 year end financials, we recommend that you prepare a statement which describes the following:
- How the Coronavirus has affected your business cash flow compared to the same time last year or, if your business is less than a year old, how normal monthly cash flow compares
- How the operations of your business have been affected—including closures, whether mandated by government or forced due to lack of funding or other reasons which you describe
- A “good faith estimate” of monetary needs for your business over the next 120 day period
Do I go through my bank to get an Economic Injury Disaster Loan (EIDL)?
No, you can apply directly on the SBA website or with the help of an attorney. We recommend seeking the assistance of an attorney when preparing documentation for your application.
How much money can I receive with the Economic Injury Disaster Loan (EIDL)?
Loans are determined by actual economic injury and can be made in valuations up to $2,000,000.00. Please note that the interest rates for these loans are 3.75% for small businesses and 2.75% for non-profits and that the loans may be for a period of up to 30 years.
How can I use the money provided by the Economic Injury Disaster Loan (EIDL)?
Funds may be used for the following purposes:
- Pay fixed debts
- Payroll and salary expenses
- Accounts payable
- Employee sick leave
- Other debts which are not able to be paid because of the disaster and not specifically disallowed
Is there a prepayment penalty with the Economic Injury Disaster Loan (EIDL)?
No, there is not.
How soon will I receive funds from the Economic Injury Disaster Loan (EIDL)?
The timeframe of when you can expect to receive these funds is, as of yet, unknown. We certainly encourage you to submit as soon as possible as there is undoubtedly large volumes of applications which are going to be sent in.
Anyone who applies for the EIDL is eligible to receive an immediate loan advance of up to $10,000. This advance is a portion of the requested loan amount that does NOT need to be repaid, even if your application ends up being denied. You are supposed to receive the advance within 3 days (72 hours) of successfully filing your application.
Paycheck Protection Program (PPP)
What is the Paycheck Protection Program (PPP) and how is it different from the Economic Injury Disaster Loan (EIDL)?
The Paycheck Protection Program is intended to support small businesses in paying their employees during the COVID-19 crisis. It relies solely on Payroll Costs, whereas the EIDL also takes tax returns, financial reports, and affected cash flow into consideration. Additionally, unlike the EIDL, there is no requirement to prove economic injury prior to receiving the PPP loan.
Who is eligible for the Paycheck Protection Program (PPP)?
Eligible businesses are any employers (including self-employed, independent contractors, and sole-proprietors) with fewer than 500 employees.
How will my Paycheck Protection Program (PPP) loan amount be determined?
Your PPP loan amount is determined by 2019 Payroll Costs. The maximum loan amount you can receive is 2.5 times the amount of your average monthly Payroll Costs (during the 2019 calendar year) OR $10,000,000, whichever is less.
Please note that there is an alternative calculation for seasonal employers. Contact us for more information.
How do I calculate Payroll Costs?
Payroll Costs are calculated by adding the following:
- Salary, wage, commission, or similar compensation
- Payment of cash tip or equivalent
- Payment for vacation, parental, family, medical, or sick leave
- Allowance for dismissal or separation
- Payment required for the provisions of group health care benefits, including insurance premiums
- Payment of any retirement benefit
- Payment of State or local tax assessed on the compensation of employees
Will a salary over $100,000 be included in the Payroll Costs?
No, not entirely. Individual employees who earn an annual salary of $100,000 or more (as prorated during the period from March 1, 2020 to June 30, 2020) will be limited to a monthly compensation of $8,500.00. This is the amount that will be calculated in your Payroll Costs when determining your maximum potential loan amount.
Are there any other restrictions or exclusions for Payroll Costs when determining the amount of the loan?
Yes. The following will be excluded from Payroll Costs:
- Federal Taxes imposed or withheld under chapters 21, 22, or 24 of the Internal Revenue Code during the covered period
- Any compensation of an employee whose principal place of residence is outside of the United States
- Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (FFCRA)
- Qualified family leave wages for which a credit is allowed under section 7003 of the FFCRA.
What can these loans funds be used for?
The funding under the loan may be used for:
- Employee salary, wage, commission, or similar compensation
- Payment of group health care benefits including insurance premiums
- Payment of interest on mortgage obligations incurred prior to March 1, 2020
- Payment of rental expenses, payment of utility expenses
- Payment of interest on debt obligations incurred before March 1, 2020 (but not including the principal of those obligations)
Do I have to prove that my business has lost money because of COVID-19 to quality for a PPP loan?
Again, no. Unlike normal SBA disaster loans, you are not required to prove that economic injury has occurred as a result of Coronavirus prior to receiving your loan. Instead you will be required to self-certify that:
- The uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the employer
- The funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments
- The employer does not have an application pending for a PPP loan for the same purpose and duplicative amounts applied for or received under a PPP loan
- During the period beginning February 15, 2020 and ending December 31, 2020, the employer has not already received amounts under the PPP
How do I qualify for loan forgiveness through the Paycheck Protection Program (PPP)?
Your entire principal balance is eligible for forgiveness provided that you:
- Use the funds for the purposes set forth by the PPP (see above)
- Do not decrease the number of full-time equivalent (FTE) employees on payroll from March 1, 2020 to June 30, 2020
- Do not decrease FTE employee pay rate by 25% or more from March 1, 2020 to June 30, 2020
Will I be taxed on my principal balance if my loan is forgiven?
No. Your loan debt will NOT be included in your gross income, and therefore, is not taxable.
When should I apply for these loans and what do I need?
As soon as possible. We recommend that you immediately obtain digital copies of the following documents:
- Three years of personal tax returns for anyone with ownership in your business
- Three years of business tax returns
- Copies of payroll records for 2019, as well as any records for 2020
- A copy of 2019 year-end financials for your business, including P&L and Balance Sheet
- Gross revenue and cost of goods sold for the business from February 1, 2019 through January 31, 2020 (EIDL only)
- Economic injury statement, as described above (EIDL only)
You will also need to complete the following forms, provided through the SBA. Please note that these forms are subject to change.
- Economic Injury Disaster Loan Support Information (Form P-019)
- Personal Financial Statement (Form 413D)
- Schedule of Liabilities (Form 2202)
- Additional Filing Requirements (Form 1368)
Once the above documents are obtained/completed, please contact one of our attorneys for preparation assistance before you file. We will make sure that everything is in order and nothing is missing from your application.
How can Hartsell & Williams assist me with these loans?
We have studied the Coronavirus Aid, Relief and Economic Security (CARES) Act legislation and understand the filing process. It requires several necessary documents from both you and your business, in order to apply.
It is our opinion that those who are first in line will be first served, and we fully believe that funding will run out before all eligible applicants have received their loan payments. We are here to help you streamline the application process by assisting you with preparation. You provide the necessary documents, and we’ll prepare all the rest—ensuring that no mistakes are made that may prevent you from receiving your funding.
We have the ability to connect you with an approved SBA lender so that you have the best opportunity to be approved and receive funding quickly. You can, of course, use your normal bank and we will be happy to work with them through the process as well. We will also represent your interests with the lender throughout the process so that you can continue to run your business.