The CARES Act passed by Congress last week, and the Families First Act a couple weeks before that, introduced a number of new employment credits, loan programs and grants for small businesses and non-profits.  They make for a dizzying array of options, and it can be confusing trying to figure out how they differ, where they overlap, and how they interact with one another.  On top of that, there are a lot of details and answers to “what if” type questions which no one knows yet.  It all leaves me feeling a bit like we’re in that old game show, “Let’s Make a Deal!”  For those who aren’t familiar, the show ended with a contestant having to pick door #1, door #2 or door #3 to win their prize.  The trick is, all they knew for sure was that a fabulous grand prize was behind one of the doors, not much of any prize behind another, and something in between behind a third, with no clue which was which.

There is no way we can set everything straight for you here, but for any particular business situation, there is a best choice.  We have developed a model to help us analyze individual business situations and sort out which will work better.  However, remember that before you make any financial decisions, you need to step back and think strategically about your business.  You have to be clear about what your ultimate goal really is, before you can chart the best course to get there.  We are here to help with both strategy and analysis!

Loans: There are two types of SBA loan programs geared toward helping businesses through the pandemic: the Economic Injury Disaster Loan (EIDL), and the Paycheck Protection Program Loan (PPPL).  The National Federation of Independent Business (https://www.nfib.com/) has some really great resources available to the general public, including a chart comparing the two loan programs side by side.  I recommend you visit there for more details; I won’t repeat it all here, but would like to make just a few points.

Timing: One school of thought says that, if you have enough financial reserves to get by for the next month or two, it might be worth waiting until the smoke starts to clear and more details are available.  With more time, you might make a better decision how to proceed.  However, there is a funding cap and loans may run out.  Plus, we don’t know for sure how long it will take to receive your loan proceeds, although everyone is hopeful it will be fairly quick… that is, by government standards.  We suggest submitting an application sooner rather than later just to get the process started.  By the time you learn how much you’re approved for, you won’t have to accept the loan at all, and may have some time before you need to make a final decision how much to borrow (if any at all).

Lender: You obtain an EIDL directly from the SBA.  The application process for an EIDL has been open for a couple weeks already.  It’s very simple, and available online at https://covid19relief.sba.gov/#/.  The PPPL on the other hand, is administered through a bank or other lender.  In theory, banks will begin accepting PPPL applications on April 3^rd (April 10^th for independent contractors), but it may take longer as they wait for guidance from SBA and develop their own internal processes.

Uses: PPPLs tend to be geared toward businesses with more payroll, and are more restrictive than EIDLs in what expenses they can be used for.  However, both the PPPL and EIDL can be used by independent contractors and sole proprietors who have no payroll.

Forgiveness: Upon applying for an EIDL, you may opt to receive an advance within three days of up to $10,000, even if your loan is ultimately not approved.  The amount of the advance is determined by SBA, and may be forgiven in whole or in part, essentially converting it to a grant, if you use it for specific expenses.  The PPPL may be forgiven to the extent you use it for specific expenses during a selected 8-week window of time between February 15^th and June 30^th; there is also a requirement to maintain head count to receive the maximum forgiveness.  Depending on your situation, the potential forgiveness could be higher with a PPPL, but the EIDL advance may be available sooner.

Available Credit:  For an SBA loan, there is usually a requirement that the borrower have no access to credit elsewhere, but this has been waived for both the PPPL and EIDL.

Collateral: None for either.  If you receive an EIDL over $25,000 however, SBA will file a general security interest lien against your business.

Personal Guarantees: None for a PPPL, and none for an EIDL under $200,000.

Door #3: Choose both!  As best we understand, taking one loan doesn’t necessarily lock you out from taking the other as well.  However, there is no double dipping; you can’t use both loans to pay the same expenses.  There is also interaction between the two as to the amount of loan forgiveness and the underwriting process itself.

Terms:  An EIDL carries an interest rate of 3.75%, the PPPL is .5% (one-half of one percent).  Your first payment may be deferred up to one year for an EIDL, and 6 months for a PPPL.  EIDL payments may stretch over as many as 30 years, but only 2 years for a PPPL.  There is no prepayment penalty under either.

Credits:  This will really take a separate article of its own to sort through, but very briefly, be aware that the PPPL and the Employee Retention Credit introduced by the CARES Act are mutually exclusive, you can only use one or the other.  That’s another reason to take your time and make sure you understand the pros and cons of all your choices so you can determine which is the better path for you.

Looking Forward:  It is still unclear how and when our current business environment will start moving toward whatever our new normal is going be.  That makes planning difficult, yet it is more important than ever.  My advice remains the same: don’t panic.  Focus on the future you want to build for you and your business, while of course staying alert to present circumstances.  You need to make smart decisions, strategic decisions.  That requires a mind that is focused and clear, and often, objective input from a trusted advisor.

Let Us Help:  We have advised hundreds of businesses over the years, helping them through all sorts of challenges and opportunities.  We can help you navigate these complex new opportunities to find the best strategic path forward for your particular business, as well as help with loan applications, cash flow projections, budgeting and more.  We would welcome a conversation to explore whether we could help you not only survive these difficult times, but thrive!  Feel free to call or email us to schedule a brief initial phone appointment to explore possibilities.