Among the many relief provisions passed by Congress in recent days are loans focused on small businesses. This isn't entirely new to the SBA, which has long been in the loan business, but recently passed laws supercharged the offerings. As with so many government programs, however, the devil is in the details. Below are some specifics, and you should review the details carefully before proceeding.
Even before the current crisis, the SBA offered the Economic Injury Disaster Loan (EIDL) program, which is still available. A newer offering the Paycheck Protection Program loan program, should be available in the coming days. Some businesses may want to wait for it to be available; others may want to apply for the EIDL program now and possibly refinance it into their PPP loan later.
Below are comparisons between the two loan programs. Note that a lot of tweaking still is going on, so details may change in the coming days.
Terms of the loan
Collateral and personal guarantees
Permitted uses of loan proceeds
Some Tax Implications
The Coronavirus Aid, Relief, and Economic Security Act grants a payroll tax credit for employment taxes owed by certain eligible employers that were especially impacted. Typically, these include but are not limited to businesses that had to close because of COVID-19.
Also, employers may be able to defer the employer portion of any Social Security taxes for the period beginning on March 27, 2020, and ending before Jan. 1, 2021. Half of the employer portion of any Social Security taxes for the payroll tax deferral period can be deferred until Dec. 31, 2021. The second half can be deferred until Dec. 21, 2022.
Would-be borrowers have a lot to consider. A key point is that any borrower who gets a PPP loan forgiven can't claim a payroll tax credit or deferral of payroll tax also offered under the CARES Act. So it is important to consider the benefits offered under each of these options in the process.
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