A Breakdown Of The CARES Act Relief Options for Small Businesses (PPP/EIDL/PUA)

In addition to the $350 billion in relief options that the Coronavirus Aid, Relief, and Economic Security (CARES) Act appropriates for small businesses, the 800+ page bill includes a myriad of acronyms that would make just about anyone glaze over. Yet the overarching question remains for the 30 million small businesses in America…what is my best option?

*You can find the latest updates on these relief options at the bottom of this article.

The CARES Act provides two loan options through the Small Business Administration (SBA).

The Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) are offered to any small business, nonprofit, Tribal business and veterans’ organizations with 500 or less employees as well as sole proprietors, independent contractors and self-employed individuals. The spirit of this loan program is to help keep businesses financially stable and individuals employed so that we can expedite our nation’s economic recovery on the other side of the COVID-19 pandemic.

Option 1: Paycheck Protection Program (PPP):

• Loan Amount: 2.5x average monthly payroll costs. Payroll costs include salary, wages commissions, covered leave, employer-paid health insurance, employer retirement matching, and state unemployment taxes (SUTA) from the last year (note: salaries capped at $100,000 per employee)
  • Example: Two employees, Salary 1 = $125,000, Salary 2 = $35,000
    • Total Annual Cost = $135,000 (Salary capped at $100,000 per individual)
    • Average Monthly Expense = $11,250 ($135,000 / 12)
    • PPP Loan Amount = $28,125 ($11,250 x 2.5)
• Maximum Loan: $10,000,000 | Up to 2 years | Interest rate of 1% | All payments deferred for 6 months
• Forgiveness: Borrowers are eligible for loan forgiveness equivalent to the sum spent on covered expenses (payroll costs, rent, utilities, mortgage interest) during the eight weeks from the start of the loan
  • Borrower must maintain employee headcount
  • Borrower must not reduce salaries/wages by more than 25%
  • Borrower must spend 75% of loan funds on payroll costs (remaining 25% on rent, utilities, mortgage interest)
  • For individuals with self-employment income who file a Schedule C, loan forgiveness is limited to: 
    • eight weeks of net profit (Form 1040, Schedule C, line 31) up to $100,000 = $15,385 which is 8x the Average Weekly Expense (8/52) of the $100,00 cap as opposed to $20,833 which is 2.5x the Average Monthly Expense of the $100,000 cap (2.5/12). 
• Taxability: Forgiven loan funds are excluded from borrower’s gross income (non-taxable)
• Stipulations:
  • Businesses must have been operating prior to February 15, 2020
  • C corp and S corp must use payroll to pay owners (if you haven’t paid yourself a salary through payroll you will not have a salary covered through PPP)
  • Payments made to contractors are not considered payroll and therefore not eligible under PPP
  • Sole proprietor / Independent Contractor salary determined by net profit (2019 tax return Schedule C or Income Statement)
• When Can I Apply:
  • April 3, 2020 for small businesses and sole proprietorships
  • April 10, 2020 for independent contractors and self-employed individuals
• Where Can I Apply:
  • Your first call should be to your current lender
  • If you do not have a current lender, you can search by zip code here for SBA eligible lenders

Option 2:  Economic Injury Disaster Loan (EIDL)

• Loan Amount: Based on Gross Revenues, Cost of Goods Sold, Lost Rents (for rental property owners), Cost of Operating Expenses (for nonprofits), Number of Employees
• Maximum Loan: $2,000,000 | Up to 30 years | Interest rate of 3.75% (nonprofit 2.75%) | All payments deferred for 12 months | Up to $10,000 cash advance ($1,000 per employee) “emergency grant.”
• Forgiveness: Emergency grant up to $10,000 is forgivable. The remainder of an EIDL loan must be paid back. The grant is forgivable if funds are used for:
  • Providing paid sick leave to employees unable to work due to the direct effect of COVID-19
  • Maintaining payroll to retain employees
  • Meeting increased costs to obtain materials due to interrupted supply chains
  • Making rent or mortgage payments
  • Repaying obligations that cannot be met due to revenue losses
• Stipulations:
  • Businesses must have been operating prior to January 31, 2020
• When Can I Apply:
  • Right Now
• Where Can I Apply:
  • You can apply directly through the SBA website here

It is important to note that a borrower who has been approved for EIDL for purposes other than payroll costs between January 31, 2020 and April 3, 2020 is still eligible for PPP if the loan funds are not used for the same purposes. Alternatively, an existing EIDL may be eligible to be refinanced into a PPP loan.

Finally, in addition to the loan options above, the CARES Act includes enhanced unemployment benefits referred to as Pandemic Unemployment Assistance (PUA).

This assistance expands temporary benefits to those not typically eligible for state unemployment compensation (UC) including self-employed individuals, independent contractors, workers with limited work histories and those unable to work due to COVID-19 related reasons. PUA extends the duration of unemployment benefits (referred to as Pandemic Emergency Unemployment Compensation “PEUC”) and increases weekly unemployment compensation (referred to as Federal Pandemic Unemployment Compensation “FPUC”). The PUA program provides up to 39 weeks of benefits as follows:

• PEUC provides up to 13 additional weeks of benefits to individuals who have exhausted their regular unemployment compensation (UC) on or before December 31, 2020
• FPUC provides eligible individuals with $600 per week in addition to their weekly UC benefit for up to 13 weeks or until July 31, 2020.
• Key Dates:
  • April 4, 2020: In states where the week of unemployment ends on Saturday, the first week PEUC may be paid is the week ending April 4, 2020
  • April 5, 2020: In states where the week of unemployment ends on Sunday, the first week PEUC may be paid is the week ending April 5, 2020
  • July 31, 2020: FPUC is available to individuals receiving PEUC for weeks on unemployment ending on or before July 31, 2020* (*Note: July 25, 2020 and July 26, 2020 in states where the week of unemployment ends on Saturday and Sunday respectively)
  • December 31, 2020: PEUC is only payable for weeks of unemployment ending on or before December 31, 2020* (*Note: December 26, 2020 and December 27, 2020 in states where the week of unemployment ends on Saturday and Sunday respectively)

• Example: An individual approved for PUA as of April 4, 2020 (retroactive) for $300/week in state unemployment compensation (for 20 weeks of regular UC) would receive a maximum benefit of:
  • $300/week state unemployment compensation for 33 weeks (20 weeks regular UC + 13 weeks PEUC from April 4, 2020 through November 21, 2020)
    • $9,900
  • $600/week FPUC for 13 weeks (from April 4, 2020 through July 4, 2020)
    • $7,800
  • Total $17,700 over 33 weeks (reminder:unemployment compensation is taxable)

Note: This example is for illustration purposes only. The benefits paid will vary according to each state’s unemployment insurance laws.

The U.S. Department of Labor website is a great resource for instructions on how to apply for unemployment insurance benefits and includes a directory for state unemployment insurance offices.

So back to the question…which is your best option?

The answer boils down to several factors including how much you qualify for under PPP vs. EIDL vs. PUA, how you will ultimately use the proceeds and your expectations for forgiveness and taxation. Now is the time to bring your financial advisor and CPA into the discussion. We are here to help you navigate not only these number-heavy decisions but also the application process.

*As of 4/16: the SBA and White House announced that the first round of appropriated funds for PPP & EIDL have been exhausted. That’s right, all $350 billion of it, in two weeks. There is an additional stimulus on the docket right now. Due to the demand, I hope they come to a resolution quickly, but that will take a few more days possibly weeks.

*On April 21, 2020: the Senate passed the Paycheck Protection Program and Health Care Enhancement Act (also referred to as the ‘Phase 3.5’ relief bill) by voice vote which amends the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was signed into law on March 27, 2020. The bill now goes to the House where a vote is expected Thursday, April 23, 2020. Read more about this here.

*August 8, 2020: the President issued a memorandum authorizing the “Other Needs Assistance Program for Major Disaster Declarations Related to the Coronavirus Disease 2019” which extends Pandemic Unemployment Assistance (PUA) as follows: