By Charlotte Tsui and Elizabeth Burnett, Staff Attorneys at the Law Center
This morning, the House of Representatives voted in favor of the $484 billion relief bill that passed in the Senate earlier this week. Once signed into law, the Paycheck Protection Program and Health Care Enhancement Act will infuse fresh new funding for small business relief to the tune of $310 billion for the Paycheck Protection Program (PPP) and $60 billion for SBA Economic Injury and Disaster loans (EIDL) and grants.
Before we dive in, a word of caution. These two Small Business Administration loan options, , even though they are called “loans”, will act essentially like “grants” in that the loans will be “forgiven” if the cooperative receiving the funds spends the money on certain specific things. Since the SBA traditionally does not provide grant money, they have rolled out their COVID-19 relief programs as “forgivable loans” instead. The SBA is guaranteeing the EIDL and PPP loans described below, but the loans are available to small businesses and cooperatives through local banks. Below is a summary of SBA’s EIDL and PPP loan programs. (For more in-depth guidance, read: COVID-19 FAQ for Cooperatives.)
1. SBA’s Payroll Protection Program (PPP)
A PPP loan is designed to cover 8 weeks’ worth of “payroll” costs, which includes salary and benefits. PPP loan funds can also be used to pay for interest on your mortgage, or rent under your lease (so long as those mortgage/lease obligations were incurred before February 15, 2020); and utilities (if service began before that date).
In order to be “forgivable” 75% of the PPP loan funds must be used to pay “payroll” costs, and you must not reduce wages or the full-time employee headcount for the 8-week duration covered by the PPP loan.
Can worker cooperatives use PPP loan funds to pay worker-owners?
The short answer is yes, though how you complete the loan application will depend on the tax treatment of the worker-owners (W-2 employees or K-1 partners). Worker-owners who receive W-2 forms will count wages paid to their workers as part of their “payroll” costs (which also includes the costs of health insurance and other employee benefits).
Partners in an LLC cooperatives can also apply for PPP loan funds to cover the cost of their guaranteed payments or owner’s draw. For immigrant cooperative LLCs applying for PPP, we suggest reading this comprehensive immigrant coop-specific guide to COVID relief programs. And here is the PPP loan information from the SBA. Use that link to check on current funding availability for the program.
How do I apply for the PPP?
Some banks are accepting applications now in anticipation of the new SBA funding. Contact the bank where your cooperative already has an account or a loan. If your bank is not an SBA lender, search for other banks, who are SBA lenders and who will make a loan to a business that is not already a customer of that bank.
Note - banks are giving priority to their own customers, but banks like Beneficial State Bank in California will also take applications from non-customers. Find eligible lenders here.
Here is an example of an application form that the SBA released for PPP; some banks may create their own form, but with more or less the same questions.
2. SBA’s Economic Injury Disaster Loans (EIDL)
The EIDL is available to any nonprofit, business (no more than 500 employees) or cooperative. The EIDL features a "forgivable" amount of up to $10,000 which doesn't have to be repaid as long as it’s spent on eligible expenses (see below). This forgivable amount is also being referred to as an “advance” or an “emergency grant”.
What can I use for EIDL money for?
EIDL can be used towards all operating expenses and cost of goods for 6 months.
What is the amount of the loan?
The maximum loan amount is $2M per business. The EIDL also features a forgivable portion, as mentioned above, sometimes called an “advance” or an “emergency grant” in the amount of up to $10,000, or $1,000 per employee, up to 10 employees. This $10,000 “emergency grant” is supposed to be distributed within 3 days, though in reality it is taking much longer.
What can I use the EIDL $10,000 advance aka emergency grant for?
The $10,000 advance aka emergency grant under the COVID EIDL program can be used only for the following expenses:
- Providing paid 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.
Do I have to repay the EIDL loan?
The “emergency grant” or “advance” portion of the loan, as mentioned above, is forgivable and is “free money” to the business as long as it’s used only for the eligible expenses listed in the previous question. The remainder of the loan must be repaid.
How do I apply for EIDL?
As of today, April 24, the EIDL application portals are closed but you can get prepared today by setting up your SBA Disaster Loan Assistance account and reviewing the application forms. Here are step-by-step instructions from the SBA on how to fill out the EIDL application once it reopens. Contact your local bank or credit union to get ready to apply.
Here are the documents you will eventually need for the EIDL application:
- SBA Loan Application (SBA Form 5 or 5C)
- Tax Information Authorization (IRS Form 4506T)
- Complete copies of the most recent Federal Income Tax Return
- Schedule of Liabilities (SBA Form 2202)
- Personal Financial Statement (SBA Form 413)
And here is the EIDL information from the SBA. Use that link to check on current funding availability for the program.
3. Questions about EIDL and PPP
Can I apply for both EIDL and PPP?
Yes, you can apply to both. However, you cannot use EIDL and PPP money for the same purposes during the same period of time.
Should I even bother applying to either of these programs?
YES! We urge cooperatives impacted by this crisis to put together an application. Yes, the rollout of funds has been disappointing and skewed towards large corporations. Still, there ARE also many stories of locally-owned businesses and cooperatives which have successfully applied.
And for this new round of funding, $30 billion is going to credit unions and community banks with assets of less than $10 billion; this will help ensure against the concentration of PPP funding in the hands of larger national commercial banks, which is what happened in the last round.
In short, the surest way of not getting PPP or EIDL money is by not asking for it at all. We encourage you to apply, and to do so ASAP!