Cash Flow Relief through the CARES Act

By Jim Kilgore CFP(R), 2 April 2020

Congress passed the CARES Act to provide emergency assistance and health response for individuals, families and businesses. The CARES Act is providing 2 Trillion dollars in assistance. I am going to cover two ways you can get money for your business as fast as possible through the CARES Act.

Economic Injury Disaster Loans (EIDL)

This is the first line of defense against disasters. These loans have been around for some time, however, these loans have been supercharged to combat the COVID-19 pandemic. Businesses who were substantially affected by the pandemic, who employ less than 500 employees and were in operation on or before January 31, 2020 are eligible to apply. It expands to Sole Proprietors or Independent Contractors.

How do I know if I am “Substantially Affected”?

The CARES act defines substantially affected as business who have experienced, supply chain disruptions, staffing challenges, a decrease in sales or customers or shuttered business.

What is the most amount of money I can ask for?

The maximum loan amount can be up to $2 million.

What can I use the funds for?

You can use the funds for the following:

  1. Payroll support, including paid sick, medical, or family leave, and costs related to the continuation of group health care benefits during those periods of leave
  2. Employee salaries
  3. Mortgage payments
  4. Rent (including rent under a lease agreement)
  5. Utilities
  6. Any other debt obligations that were incurred before the covered period

What are the terms of the loans?

The SBA offers many favorable terms in their EIDLs:

  1. The term is 30 years
    1. Interest Rates are 3.75% for small business and (2.75% for non-profits)
    1. The first month’s payments are deferred a full year from the date of the promissory note
    1. EIDLs less than $200K do not need a personal guarantee

How do I apply?

You can apply for these loans directly through the SBA at www.SBA.gov/disaster. There are no loan fees, guarantee fees, or prepayment fees. Even if you apply and are approved you do not have to take the loan so there is no harm in applying.

Paycheck Protection Program Loan Guarantee

Under the CARES Act Paycheck Protection Loan Guarantee offers one more source. These loans are done through your local lender. This program is offered to small business with fewer than 500 employees and select types of business with fewer than 1500 employees. Self-employed, sole proprietors, freelance, and gig economy workers are also eligible to apply.

How do I know if this program is right for my business?

This program is primarily for those businesses who have experienced a downturn as a result of COVID-19 pandemic and who are still in business and employing people.

What is the most amount of money I can ask for?

The maximum loan amount is $10 million but most business will apply for loans equal to 2.5 times their average monthly payroll costs including healthcare, paid sick leave and other benefits.

What can I use the funds for? You can use the funds for

  1. Payroll Costs excluding amounts for individual with compensation greater than $100,000.
  2. Rent pursuant to a lease executed before February 15th, 2020
  3. Utilities including internet and
  4. Group Health Insurance

Is this loan forgivable without any tax implications to me or my business?

You must maintain the same average number of employees for the first eight-week period beginning on the origination date of the loan as you did from February 15, 2019 -June 30, 2019 or January 1, 2020 to February 15, 2020. However, if you do not meet this requirement the amount forgiven will be reduced. There are additional reductions if you decrease employees’ salaries making less than 100,000 by more than 25% as compared to the previous quarter.

What are the terms of loans?

The SBA offers many favorable terms in their PPP loans:

  1. The term is 10 years
  2. Interest Rates go up to 4%
  3. The first month’s payments are deferred a full year from the date of the promissory note.
  4. They do not need a personal guarantee

How do I apply?

You can apply for these loans directly through your local lenders.

Questions?

If you have any questions on either type of loan or any portions of the loan application process please feel free to reach out to me at jim@401advisor.com or call at 937-782-9971.

Mr. Kilgore is a CERTIFIED FINANCIAL PLANNER™  with 401 Advisor, LLC an independent registered investment advisor. He is also a registered representative of Ceros Financial Services, Inc. (Member FINRA/SIPC). Ceros is not affiliated with 401 Advisor. The views expressed are those of Mr. Kilgore and do not necessarily reflect those of Ceros Financial Services, Inc., its employees or affiliates.


bill@401advisor.com • 937.434.1790

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