"What are my options, and which one is right for me?"

This is the question many business owners are asking right now. The passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act has created optimism for significant, timely help to small businesses across America. But with a variety of options to consider and the fact that time may be of the essence, small business owners need clarity on which path to take — and they need it quickly. However, the best solution may be vastly different depending on your unique situation.

Here we will cover the four primary funding options for small businesses offered by the Small Business Administration (SBA) under the CARES Act:

  1. Emergency Economic Injury Grant (Emergency Grant)
  2. Economic Injury Disaster Loan (Disaster Loan)
  3. Paycheck Protection Program Loan (PPP Loan)
  4. Traditional SBA Loan

Emergency Economic Injury Grant (Emergency Grant)

"I need a small amount of emergency cash right now!"

If this is you, then an Emergency Grant of up to $10,000 may be what you need. These grants are available to businesses that apply for a Disaster Loan between January 31, 2020, and December 31, 2020. An Emergency Grant is not required to be repaid, even if the Disaster Loan is denied. The funds may be used to pay salaries, sick leave, rent, loan payments, or other obligations. The funds may be advanced as soon as three days from application date.

Economic Injury Disaster Loan (Disaster Loan)

"I have a lot of non-payroll expenses and I need to borrow funds quickly with favorable, long-term payment terms."

If this is the situation your business is in today, a Disaster Loan may be the right SBA funding option for you. Disaster Loans are not new, but the CARES Act has made significant enhancements to these programs for the period from January 31, 2020, through December 31, 2020. To be eligible, your company must have fewer than 500 employees or be another qualified business. The CARES Act has waived the previous requirement to exhaust other credit options available to you in order to be approved.

The current provisions allow for loans of up to $2 million in order to meet working capital needs following a qualified disaster, such as COVID-19. These loans may be repaid over a 30-year period at an interest rate of 3.75% (or 2.75% for not-for-profits). There is no longer a requirement to have been in business for at least 12 months prior to the disaster.

If you are approved for a Disaster Loan and use the proceeds to fund payroll, the loan may be refinanced into a Paycheck Protection Program (PPP) Loan, if approved. If the Disaster Loan is approved for uses other than payroll, you may be eligible for both a Disaster Loan and a PPP Loan.

At the time you apply for a PPP Loan you may be eligible to refinance an existing Disaster Loan into the PPP Loan.

Paycheck Protection Program Loan (PPP Loan)

"I need capital ASAP in order to retain my employees."

This is the big one. PPP Loans will be available from approved banks and credit unions during the "covered period" of February 15, 2020, through June 30, 2020. PPP Loans are 100% guaranteed by the SBA until December 31, 2020, and at 75-85% after that depending on the size of the loan. There is no collateral requirement, and you do not need to prove that you were unable to obtain credit elsewhere.

This is all about saving jobs and doing it as quickly as possible in order to accelerate your business's recovery following the return to an active economy.

PPL Loans come with no fees and no prepayment penalties. To be approved, you must certify that the funds will be used to retain your current workforce and/or make payments for rent, mortgage interest, or utilities. Also, your company must have fewer than 500 employees or be another qualified business. There are technical rules related to affiliation with other entities that must be considered when determining eligibility.

In general, the maximum PPP Loan for your company is the lesser of: a) the sum of the average monthly payroll costs for the 12 months prior to the loan date x 2.5; PLUS any outstanding Disaster Loan balance; OR b) $10 million. Exceptions may apply for companies not in business for a full year or if you operate a seasonal business.

In general, the loan is expected to be approximately 250% of your average monthly payroll costs for the previous year, with certain limitations.

The funds must be used during the period of February 15, 2020, through June 30, 2020 for payroll, group healthcare, mortgage and other interest, rent, or utilities. The loan comes with a maximum maturity of 2 years, maximum interest rate of 1%, and a guaranteed payment deferral of 6 to 12 months.

Now for the best part — loan forgiveness! PPP Loans, when used for their intended purpose, will provide forgiveness for the first 8 weeks' worth of payments. The forgiveness amount will be reduced if you terminate employees or reduce salaries during the 8-week period. However, if your company replaces any full-time employees or restores reduced salaries between February 15, 2020, and June 30, 2020, loan forgiveness may be restored at the same rate. Therefore, the program is retroactive to February 15, 2020, in order to help bring back employees who may have been laid off or furloughed since that day.

In order to receive loan forgiveness, you must apply with your lender and provide relevant documentation of your payroll over the relevant periods, as well as other payments made for rent, mortgages, and utilities.

Applications for PPP loans may begin on April 3, 2020, for most small businesses.

Note that taxpayers with PPP Loans that use the loan forgiveness benefit are not eligible for two provisions of the CARES Act:

  • Employee Retention Payroll Tax credit
  • Deferral of payroll tax deposits

Traditional SBA Loan

"I want to lock up a financing package at the most favorable terms I can get."

For some, a Traditional SBA Loan is the right financing tool. These loans can go up to $5 million, typically at low rates ranging from 1.0-2.75%. Payment terms are typically 10 years without real estate and 25 years with real estate. The SBA will subsidize the loan with 6 months of principal, interest, and fees.

Next Steps

If you need assistance with analyzing or modeling the scenarios above, reach out to your Delap advisor for help. Also, call your bank and let them know you are applying for SBA funding under the CARES Act. Many of the SBA-approved lenders have streamlined the application process once you have determined which path is best for you. Begin assembling the documentation required for approval, which may include payroll records and support for other expenses such as rent, loan payments, utilities, or other obligations.

The stimulus package includes $359 billion for the PPP Loans and Disaster Loans alone. We are about to find out how fast $359 billion can be spent. Many experts predict this will not be enough, and the funds will be depleted quickly. So don't snooze on this opportunity. If you are slow to apply, that may mean the difference between receiving funding or not.


There are many other provisions within the CARES Act that may impact your business or yourself personally. These may include individual stimulus payments, changes to charitable contribution and retirement plan rules, tax credits and deferrals, and other tax law changes resulting in planning or refund opportunities.

If you have any questions about the CARES Act, including the above SBA programs, don't hesitate to reach out to your Delap advisor. We are here for you and we are in this together!

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