Editor's Note: This information should be used for background purposes only, since passage of these bills was in early 2020. Significant changes to the program have been made; please consult your tax advisor.
For small businesses dealing with the financial consequences of the worldwide Covid-19 pandemic, the nation’s CARES Act includes two separate and distinct relief plans. One or both could help your company bridge the financial gap.
Mike Lousteau, General Counsel for ServiceTitan, joined a webinar hosted by ServiceTitan on April 2 to explain the differences, the nuance, and the probable plan of attack for the trades. This article includes a recap of the webinar but also includes important updates based on the most recent published guidance.
The two programs in the CARES Act are the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL).
First, the distinctions.
The Paycheck Protection Program is, as the name suggests, meant to keep employees on a company’s payroll during the Coronavirus pandemic.
For those who own businesses with fewer than 500 employees, it is preferable for a number of reasons: It’s a bigger pool of money, encompassing about $350 billion of the $2 trillion package (recent discussions suggest a further $250B may be on the way); it covers payroll expenses for both full- and part-time employees, plus other prescribed expenses; and the loan will be mostly forgiven if certain criteria are met by the business.
The loan amount can be up to $10 million and is determined by your calculation of the MONTHLY total, multiplied by 2.5, of the following:
Payroll, including salary, wages, commissions, tips, vacation, medical sick leave, dismissal or separation benefits, and group healthcare benefits.
Rent, or mortgage interest (but not principal).
(The 2.5 multiplier is intended to represent eight weeks of payroll plus 25 percent for those other expenses.)
“If you use the loan for those things, the loan will be forgiven for the amount you spend on those things,” Lousteau said. Certain conditions and limitations will apply, though, including penalties for reducing your FTE count and decreasing compensation more than 25 percent.
The pool is limited, and not all the details are worked out, but Congress has provided enough guidance for businesses to move forward getting their applications and materials together.
Because of the limited funds, it’s important to apply quickly. “The money very likely will run out,” Lousteau said. “Like I tell my kids, be ready to order when the waitress comes to the table.”
The intent of the PPP is to keep money flowing to employees.
The Economic Injury Disaster Loan, on the other hand, is meant to benefit companies harmed financially by the Coronavirus outbreak. This existing program has $10 billion in new funding to address losses to your business — the loss of a big installation contract or a dip in business because customers don’t want workers in their house, for instance — of up to $2 million because of COVID-19.
The loans are repayable at a maximum interest rate of 4 percent, payments can be deferred for up to four years, and they can be stretched over 30 years.
“It’s a whole different set of math,” Lousteau said. “You tell (the Small Business Association) your situation and they come up with a loss calculation and make you a loan.”
The PPP will be administered through your local bank, with most sizable banks including virtually all the national banks participating, while the EIDL program is run directly by the Small Business Association (SBA).
Resources for the trades
For the latest information on how the COVID-19 outbreak is impacting the trades, check out our Coronavirus blog, our Facebook group for customers and our Facebook group for the industry.
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