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The COVID-19 Stimulus Package Law: A Guide for Small Businesses

Posted by: New Americans Magazine , April 6, 2020

By Emmanuel Olawale, Esq.

The U.S. congress has made about $377 billion available in loans and grants for small businesses in response to the catastrophic financial impacts of the corona virus pandemic and the resultant shutdowns.

There are two important programs for small businesses and non-profit organizations under the corona virus stimulus package, they are the Paycheck Protection Program (PPP) and Economic Injury Loan Disaster Program (EIDL).

Types of businesses that are eligible to apply for the aid under these programs are listed below:

  1. Any business with 500 employees or less,
  2. Self-employed individuals, sole proprietors and independent contractors,
  3. Any 501(c)(3) non-profit organization that has 500 or fewer employees, this includes churches, other religious organizations and charitable organizations,
  4. Businesses that are categorized as “accommodation and food services” such as hotels, restaurants that have 500 or fewer employees,
  5. Tribal businesses,
  6. 501 (c ) 9 veterans organizations,
  7. Independently owned franchises,
  8. Internet-based businesses located in the United States with 500 or fewer employees.

Paycheck Protection Program (PPP): The PPP program is specially designed to help small businesses retain their employees or rehire those they have laid off as a result of the pandemic. Under the PPP program, organizations can obtain up to $10 million in loans that are 100% forgivable if they do not lay off any employees or if they rehire employees they have already laid off by June 30, 2020.

The PPP is intended to help businesses cover eight weeks of payroll, utility, rent and mortgage interest payments.  It should be noted that the PPP covers only payments of mortgage interests, and not the mortgage itself.

The loans are forgivable if businesses keep employees or rehire them by June 30, 2020 and if they use the funds for the intended use.  The intended use rule is satisfied when a business use seventy five percent of the loan to cover its payroll.  The other twenty five percent could be used to cover rent, mortgage interests and utility bills.

Whatever portions of the loan that are used for other expenses have to be repaid.  For instance, if a portion of the loan is used to pay for the business’s vehicle loan or supplies, that portion would have to be repaid. Also, if for example, a business uses fifty percent of the loan for payroll and used the rest for the unintended use, the portion of the loan that was not used for payroll is not forgivable.

Additionally, If a business did not rehire the employees it laid off and used their payroll cost to obtain the loan, it will have to repay the portion of loan meant for the laid off employees unless it hires new employees to cover the portion for the employees that were laid off.

If a business reduces its workers’ wages by more than twenty five percent (25%) during the period it is using the loan, part of the loan will not be forgiven.

For those that would have to pay back the full loan or a part of the loan, the loan will have an interest rate starting at 1% and has a maximum term of repayment of two years.  Payments can be deferred for up to six months.

Businesses can request up to 2.5 times the average cost of their monthly payroll. For instance, if the monthly payroll cost is $3,000.00, a business can request $7,500.00. A business can get up to $100,000 loan per employee, but an aggregate maximum of $10 million.

The application is processed through local banks. Businesses are encouraged to contact their local banks immediately before the amount appropriated is exhausted. The application process started on April 3, 2020.

Economic Injury Disaster Loan Program (EIDL):  THE EIDL includes a $10,000 grant that businesses can apply for and do not have to repay.

There is also a loan under the EIDL.  Businesses can apply for a loan up to $2million. The loan amount a business can apply for depends on the economic injuries it has sustained because of the corona virus. The loan is not forgivable, and the entire amount has to be repaid.

EIDL loans and grants are more flexible as to what they can be used for.  They can be used to pay mortgages, rents, business car loans, salaries and other operational expenses.

The EIDL loan has an interest rate of 3.75% for small businesses and 2.75% for non-profit organizations.  The maximum term of repayments is 30 years and it can be deferred for six months.

Businesses can apply for the EIDL grant or loan through the Small Business Administration (SBA). The application is live on www.sba.gov.

A business or non-profit organization must have been in business as of January 31, 2020 to qualify for EIDL grant or loan and must have experienced economic injury as a result of the corona virus.  Economic injury such as loss of revenue, loss of businesses or perishable goods.

Documents Needed: It is suggested for businesses who plan to apply for any of these programs to prepare their monthly payroll cost documents, monthly Operational Cost or business expenses, financial statements (Profit and Loss statements) and recent business tax returns.   Banks and the SBA may request additional documents during the application process.

Emmanuel Olawale is the owner of The Olawale Law Firm, he is also the author of “The Flavor of Favor: Quest for the American Dream. A Memoir.”  He can be reached at info@olawalelaw.com and +16147724177. 

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Deba Uwadiae is an international journalist, author, global analyst, consultant, publisher and Editor-in-Chief of the New Americans Magazine Group, Columbus, Ohio. He is a member of the Ohio Legislative Correspondents Association, OCLA.

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