On April 23, 2020, Congress passed Paycheck Protection Program and Health Care Enhancement Act, H.R. 266 (the “Act”).  Among other things, the Act provides additional funding to the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”), which was previously created by Congress in order to provide low-interest forgivable loans to small-businesses in order to cover eight (8) weeks of payroll expenses during the ongoing COVID-19 outbreak and certain other permitted costs.  The Act also provides additional funding for SBA Emergency Economic Injury Disaster (“EIDL”) loans and grants.

Increased Funding for SBA PPP Loans

When Congress initially passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), it allocated $349 billion for SBA PPP loans.  Given the enormous popularity of the program, those funds were exhausted by April 16, 2020.  The Act replenishes funding for PPP loans with an additional $310 billion.  As with the initial round of funding, the PPP program will remain first-come, first-serve and businesses are expected to continue applying in large numbers.

As part of the replenishment of the funds available for SBA PPP loans, the Act carves out $60 billion of that new funding for PPP loans made by insured depository institutions, credit unions, and community financial institutions, which includes minority depository institutions, certified development companies, microloan intermediaries, and State or Federal Credit Unions.  This carve out was included following concerns that many small businesses, particularly rural and minority-owned businesses, were having difficulties accessing the loan funds through their community banks and local financial services institutions.

Increased Funding for SBA EIDL Loans and Grants 

In addition to replenishing the funds available for PPP loans, the Act provides an additional $60 billion in funds for the SBA’s EIDL programs. Under the EIDL program, small business owners can apply directly to the SBA for low-interest loans of up to $2 million because of loss of business related to the coronavirus outbreak.  Unlike PPP loans, EIDL loans are not generally forgivable.  Businesses are eligible to receive both an EIDL loan and a PPP loan so long as the loans are used for different permitted purposes.

Additionally, the CARES Act created an EIDL grant program which allows small businesses to receive a  grant of up to $10,000 (limited to $1,000 per employee) while their EIDL loan are pending.  These grants do not have to be repaid even if the business is ultimately denied for a loan. However, if an EIDL loan is subsequently consolidated into a forgivable PPP loan, the amount of the EIDL grant is deducted from the total PPP forgiveness.

As with PPP loan funds, the EIDL loan funds were initially exhausted quickly.  The Act provides an additional $10 billion in funds for the EIDL grant program and an additional $50 billion in funds for EIDL loans.

As interest and demand in both loan programs continue to remain high, it is expected that the additional funding for the PPP and EIDL lending program will be exhausted soon.  Accordingly, businesses hoping to avail themselves of these lending programs should move quickly to begin the application process.

Should you have any questions about the PPP or EIDL lending programs, please contact Nathan Duggins at nduggins@tuggleduggins.com or (336) 271-5246, Ross Hamilton at rhamilton@tuggleduggins.com or (336) 271-5279, Scott Gayle at sgayle@tuggleduggins.com or (336) 271-5232, or Daniel Stratton at dstratton@tuggleduggins.com or (336) 271-5240. Please also follow our Twitter account @TuggleDuggins at https://twitter.com/TuggleDuggins  for continuing, up-to-date information related to navigating the law during the COVID-19 outbreak.

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