Comparing Federal Disaster Loan Assistance Programs for COVID-19 Relief

Comparing and Contrasting Federal Disaster Loan Assistance Programs for COVID-19 Relief

The federal government has pledged hundreds of billions of dollars to help small businesses through the COVID-19 pandemic.

The Economic Injury Disaster Loan Program (EIDL), the Paycheck Protection Program (PPP), and the Main Street Lending Program allow companies to borrow millions of dollars to keep running their businesses and employing their workers.

Though EIDL and PPP loans (Table 1) are both for disaster assistance, they differ in requirements and provisions. And you can only have one loan at a time, though you can use a PPP loan to refinance an EIDL loan.

The Main Street Lending Program could be a third option for small businesses as well as a possible choice for mid-sized companies that exceed the size limits for the EIDL and PPP programs for small-businesses. The Federal Reserve and the Department of the Treasury recently expanded the Main Street Lending Program (Table 2) by offering more options to a wider set of eligible small and medium-size businesses. The program offers new loans as well as increases to existing business loans.

Also, you may be eligible for the Employee Retention Credit (Table 3), which is a fully refundable tax credit for employers equal to 50 percent of qualified wages. The maximum credit for an employee is $5,000.

Compare and contrast options for COVID-19 relief for businesses to determine which would be best for your company.

Table 1

Economic Injury Disaster Loan Program (EIDL) Paycheck Protection Program (PPP)
Lender U.S. Small Business Administration The SBA guarantees loans made through approved lenders.
Loan limit $2 million The lesser of:

A) 5x the average total monthly payroll costs incurred during the 1-year period before the date on which the loan is made PLUS the outstanding amount of any EIDL loan being refinanced.

 

(The average total monthly payments for payroll for a seasonal employer will be for the 12-week period beginning February 15, 2019, or at the election of the eligible recipient, March 1, 2019, and ending June 30, 2019.)

 

B) If an applicant was not in business from Feb. 15, 2019 to June 30, 2019, 2.5 x the average total monthly payroll costs for Jan. 1-Feb. 29, 2020 PLUS the outstanding amount of any EIDL loan being refinanced.

 

C) $10 million

 

Payroll costs may include:

  • Salaries, wages, commissions, or similar employee compensation
  • Cash tips or equivalent
  • Vacation, parental, family, medical, or sick leave
  • Group health care benefits, including insurance premiums
  • Retirement benefits
  • State or local tax assessed on the compensation of employees
  • Allowance for dismissal or separation

 

Loan use(s)

 

Proceeds may be used to pay for:

  • Sick leave to employees unable to work due to the direct effect of the COVID–19;
  • Maintaining payroll to retain employees during business disruptions or substantial slowdowns;
  • Meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains;
  • Making rent or mortgage payments
  • Repaying obligations that cannot be met due to revenue losses.
Proceeds may be used to pay for:

  • Payroll costs, including:
    • Group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
    • Salaries, wages, commissions, or similar employee compensation
  • Mortgage interest (which shall not include any prepayment of or payment of principal on a mortgage obligation);
  • Rent (including rent under a lease agreement);
  • Utilities; and
  • Interest on any other debt obligations that were incurred before the covered period.
Funding timeline Advance of as much as $10,000 within three days. Advance does not have to be paid back if loan is denied. Dependent on lender and application process.
Loan term As many as 30 years Two years
Interest rate 3.75% for businesse

2.75% for nonprofits

1%
First loan payment In 12 months In six months
Loan forgiveness Not eligible A loan may be fully forgiven if at least 75% of proceeds go to payroll costs with the remainder going only to mortgage interest, rent, or utilities

You must retain or quickly rehire employees and main salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.

Eligibility Businesses with fewer than 500 employees, though you may be able to have more depending on SBA Size Standards for your industry.
  • Businesses, nonprofits, veterans organizations, or Tribal business concerns with fewer than 500 employees, though you may be able to have more depending on SBA Size Standards for your industry.
  • Also, you may be able to apply for assistance for each store if you are a small business in the hospitality and food industry that has more than one location with fewer than 500 workers.
  • Self-employed individuals
  • Independent contractors
Personal guarantee No personal guarantees for advances or loans of $200,000 or less None required
How to apply COVID-19 Economic Injury Disaster Loan Application Through your bank or another participating lender
COVID-19 Economic Injury Disaster Loan Application Through your bank or another participating lender Through your bank or another participating lender

 

Table 2

Main Street New Loan Facility (MSNLF) Main Street Expanded Loan Facility (MSELF) Main Street
Priority Loan Facility (MSPLF)
Lender The Federal Reserve and the Department of the Treasury will purchase loans made through approved lenders. The Federal Reserve and the Department of the Treasury will purchase loans made through approved lenders. The Federal Reserve and the Department of the Treasury will purchase loans made through approved lenders.
Loan limit The lesser of:

  1. $25 million
  2. An amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed 4.0x the borrower’s 2019 earnings before interest, taxes, depreciation, and amortization

 

(The minimum loan size is $500,000.)

The lesser of:

  1. $200 million
  2. 35% of the borrower’s existing outstanding and committed but undrawn debt
  3. An amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed 6.0x the borrower’s 2019 earnings before interest, taxes, depreciation, and amortization

 

(The minimum loan size is $10 million.)

The lesser of:

  1. $25 million
  2. An amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed 6.0x the borrower’s 2019 earnings before interest, taxes, depreciation, and amortization

 

(The minimum loan size is $500,000.)

Loan use(s)

 

Proceeds may be used to:

  • Maintain payroll and retain employees during the term of the loan
Proceeds may be used to:

  • Maintain payroll and retain employees during the term of the loan
Proceeds may be used to:

  • Maintain payroll and retain employees during the term of the loan
Funding timeline Dependent on lender and application process Dependent on lender and application process Dependent on lender and application process
Loan term Four years Four years Four years
Interest rate Adjustable rate of London Interbank Offered Rate (LIBOR) (1-month or 3-month) + 300 basis points Adjustable rate of London Interbank Offered Rate (LIBOR) (1-month or 3-month) + 300 basis points Adjustable rate of London Interbank Offered Rate (LIBOR) (1-month or 3-month) + 300 basis points
First loan payment Amortization of principal and interest deferred for one year Amortization of principal and interest deferred for one year Amortization of principal and interest deferred for one year
Loan forgiveness Not eligible Not eligible Not eligible
Eligibility
  • Businesses with as many as 15,000 employees or as much as $5 billion in 2019 annual revenues
  • Business must be created or organized in the U.S. or under the laws of the U.S. with significant operations in and a majority of its employees based in the United States.
  • Borrowers may not participate in the MSELF, the MSPLF, or the Primary Market Corporate Credit Facility.
  • Businesses with as many as 15,000 employees or as much as $5 billion in 2019 annual revenues
  • Business must be created or organized in the U.S. or under the laws of the U.S. with significant operations in and a majority of its employees based in the United States.
  • Borrowers may not participate in the MSNLF, the MSPLF,  or the Primary Market Corporate Credit Facility.
  • Businesses with as many as 15,000 employees or as much as $5 billion in 2019 annual revenues
  • Business must be created or organized in the U.S. or under the laws of the U.S. with significant operations in and a majority of its employees based in the United States.
  • Borrowers may not participate in the MSNLF, the MSELF,  or the Primary Market Corporate Credit Facility.
Personal guarantee Details not available Details not available Details not available
How to apply Through your bank or another participating lender Through your bank or another participating lender Through your bank or another participating lender

 

Table 3

COVID-19-Related Employee Retention Credits
Description The Employee Retention Credit is a fully refundable tax credit for employers equal to 50 percent of qualified wages (including allocable qualified health plan expenses) that Eligible Employers pay their employees. The credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021.
Eligibility Eligible Employers for the purposes of the Employee Retention Credit are employers that carry on a trade or business during calendar year 2020, including tax-exempt organizations, that either:

  • Fully or partially suspend operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or
  • Experience a significant decline in gross receipts during the calendar quarter.
Qualified wages

 

Qualified wages are wages (as defined in section 3121(a) of the Internal Revenue Code (the “Code”)) and compensation (as defined in section 3231(e) of the Code) paid by an Eligible Employer to some or all employees after March 12, 2020, and before January 1, 2021.  Qualified wages include the Eligible Employer’s qualified health plan expenses that are properly allocable to the wages.

The definition of qualified wages depends, in part, on the average number of full-time employees (as defined in section 4980H of the Code) employed by the Eligible Employer during 2019. For more information, see Determining Qualified Wages.

Credit amount The Employee Retention Credit equals 50 percent of the qualified wages (including qualified health plan expenses) that an Eligible Employer pays in a calendar quarter.

The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for qualified wages paid to any employee is $5,000.

Refund The credit is fully refundable because the Eligible Employer may get a refund if the amount of the credit is more than certain federal employment taxes the Eligible Employer owes. That is, if for any calendar quarter the amount of the credit the Eligible Employer is entitled to exceeds the employer’s share of the social security tax on all wages (or on all compensation for employers subject to RRTA) paid to all employees, then the excess is treated as an overpayment and refunded to the employer under sections 6402(a) and 6413(a) of the Internal Revenue Code (the “Code”).
Claiming How to Claim the Employee Retention Credit

Sources:

Coronavirus Aid, Relief, and Economic Security Act (CARES)

Economic Injury Disaster Loan Program (EIDL)

Paycheck Protection Program (PPP)

Term Sheet: Main Street New Loan Facility (MSNLF)

Term Sheet: Main Street Expanded Loan Facility (MSELF)

Term Sheet: Main Street Priority Loan Facility (MSPLF)

COVID-19-Related Employee Retention Credits

The EIDL, PPP and Main Street Lending programs may be able to help your business through the coronavirus pandemic. Choose the right one for you by comparing and contrasting the programs for COVID-19 relief for businesses.

Contact ROARK to learn more about federal disaster loan assistance programs for COVID-19 relief and how we can help you choose the right loan for your business.

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