Understanding Federal and Maryland Emergency Covid-19 Relief Loans and Grants for Small Businesses and Contractors (this includes YOU work-for-hire and sole proprietors!)
Looking at the CARES Act – Paycheck Protection Program and Economic Injury Disaster Loans
By: Elizabeth J. McInturff
Unusual times call for unusual solutions, or, at the very least, business assistance loans and grants. The Federal and State governments are rolling out a number of programs that were created to assist small business & nonprofits, independent contractors, work-for-hire, and self-employed persons, that have been negatively affected by the COVID-19 pandemic. These programs may very well make the difference between keeping your business open and carrying your payroll or being forced to shut down for the short or long-term.
Below is a broad overview that I prepared for the two federal disaster loan programs – the Paycheck Protection Program and the Economic Injury Disaster Loan – available through the Small Business Association, as well as for Maryland’s Small Business Covid-19 Emergency Relief Grant Fund. The Acts that created these programs are quite detailed and as such are addressed here in broad strokes. You should consult with your attorney and financial planner to determine whether your business may be eligible for assistance under any of these programs.
The Paycheck Protection Program (PPP)
The PPP was enacted under the CARES Act and makes $350 billion available to increase the government guarantee of loans to small businesses, 501(c)(3) nonprofits, sole proprietors, independent contractors, self-employed individuals, as well as certain other entities, with 50 or fewer employees.
The PPP provides cash-flow assistance of up to 250% of your average monthly payroll through 100% federally guaranteed loans to employers who maintain their payroll during this pandemic. There are a number of beneficial features to the PPP, such as forgiveness of up to 8 weeks of payroll costs based on employee retention, as well as mortgage/rent, interest and utility payments.
Who is eligible? Eligible small businesses, sole proprietors, independent contractors, self-employed individuals, and 501(c)(3) nonprofits, who were in operation since at least on February 15, 2020.
How is the loan size determined? The loan size is calculated based on your business’s situation and your dates of operation, but the maximum loan size is always $10 million.
- If you were in business between February15, 2019 – June 30, 2019, the maximum loan is equal to 250% of your average monthly payroll costs during that time period. * If your business employs seasonal workers, then you can opt to choose May 1, 2019 as your time period start date.
- If you were not in business during this time period, then your maximum loan is equal to 250% of your average monthly payroll costs between January 1, 2020 and February 29, 2020.
What costs are eligible for payroll under the PPP? Compensation (under $100,000), payment for qualifying leave, allowance for dismissal or separation, payments for group health benefits including insurance benefits, retirement benefits and state or local tax assessed on the compensation of employees, rent/mortgage payments, interest payments on debt obligations incurred before the covered period, and utilities.
What is the loan term, rates and forgiveness program? The maximum term of the PPP loan is 10 years, with a maximum 4% interest rate. You may apply through your lender for forgiveness for payroll costs incurred during the 8-week covered period, proportionate to maintaining employees and wages (for employees earning under $100,000), as well as covered rent/mortgage, interest and utility payments.
Economic Injury Disaster Loans & Grants (EIDLs)
EIDLs are lower interest rate loans of up to $2 million, with deferred principal and interest payments for up to 4 years. The proceeds for this loan are likewise to be used to pay for expenses that could have been met but for the emergency, such as payroll costs and other operating expenses.
Who is eligible? Eligible small businesses, sole proprietors, independent contractors, 501(c)(3) non-profits, and cooperatives who were in operation since at least on January 31, 2020.
The EIDL loans are also available for private secular non-profits who may not have a tax-exempt ruling from the IRS but can provide satisfactory evidence from your State that you are a non-revenue producing organization or entity that is organized or doing business under state law.
What is the loan term, rates and forgiveness program? EIDLs typically have a lower interest rate than your standard bank loan and have deferred principal and interest payments for up to 4 years. EIDLs are not subject to loan forgiveness and even if you later convert your EIDL into a PPP, any advance amount received under the EIDL would be subtracted from the amount forgiven in the PPP.
Can I get both an EIDL and a PPP? You may apply for both an EIDL and a PPP, however, you may not use your EIDL for the same purpose as your PPP loan. For example, you cannot utilize both the EIDL and the PPP to cover your payroll in the same month.
Maryland’s Small Business COVID-19 Emergency Relief Grant
Maryland recently established a $50M Small Business COVID-19 Emergency Relief Grant Fund that provides up to $10,000 working capital to small businesses and nonprofits with 50 or fewer employees that have experienced disrupted operations due to the pandemic. The grant may be used for working capital to support payroll, rent or mortgage payments, utility expenses, and the like. Grantees must meet certain criteria, such as being in good standing to do business in the State, have W-2 employees on their payroll, and meet certain revenue criteria. Businesses must also demonstrate financial stress or disruption to operations. Many of these circumstances will be reviewed on a case by case basis and may include such circumstances such as inability to make loan payments due to reduced sales or suspended operations.