Alert: New Funding for PPP and EIDL Loans

Posted By Mike Meyer, Thursday, April 23, 2020

handing cash

By Patrick O'Brien, JD, legal coordinator, American Med Spa Association

Thursday afternoon, the U.S. House of Representatives voted to pass HR 266, a measure that would increase funding to two programs targeted at supporting small businesses during the COVID-19 pandemic. The Senate already passed this measure by voice vote on Tuesday, and with the bill passing the House, the President is expected to sign it into law later today. As we reported last week, both the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) programs exhausted their allocated funds. This new measure should provide some additional relief to small businesses who were shut out of the initial round of loans.

We cover details of these programs here and in some webinars available here. To briefly recap, the PPP provides loans to small businesses equal to 2.5 months of their average payroll expenses. The terms are for two years at 1% interest. The main benefit of the program is that money spent on payroll and other approved expenses during the first eight weeks is eligible to be forgiven. (The rules for this are extremely complex, so please see our prior resources for details.) The PPP was created by the Coronavirus Aid, Relief and Economic Security (CARES) Act and was initially funded with $349 billion. It began issuing loans on April 3 and was reported to have exhausted its funds on April 16. Today's funding bill provides an additional $310 billion to this program. Once it is signed into law, it is expected that the Small Business Administration (SBA) will be able to begin issuing new loans immediately. It is expected that banks will first work through existing loan applications, though they likely will begin accepting new applications immediately as well.

The EIDL loan is a more traditional recovery loan with longer terms (up to 30 years) and interest set at 3.75%. The CARES Act expanded this program with funding and by creating a special emergency grant to businesses applying for these loans that is currently issued at the rate of $1,000 per employee up to $10,000 and does not need to be repaid. The CARES Act contained $10 billion in funds for the SBA to expand this program during the pandemic. All these funds were exhausted late last week. With today's new funding bill, an additional $10 billion is made available for these loans. Likewise, the SBA is expected to work through their application backlog first.

Both of these programs have had their share of issues and criticisms. Today's new funding bill does not make any adjustments or corrections to the two programs; it only provides additional funds. There have been issues involving the application process and how the loans are issued that have improved with time. There is still substantial uncertainty with details and requirements for the loan forgiveness portion of the PPP. We will be discussing new developments and what we currently know about these programs in a upcoming webinar on Monday, April 27, at 1pm Central Time; you can register for it here. AmSpa will endeavor to bring you the latest news and resources to help you see the COVID-19 pandemic through and re-open your business. (See our Re-opening Toolkit for Medical Spas here.)

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