CARES Act:  EIDLs & ESOPs

By CSG Staff

One aspect of the CARES Act of 2020 that's especially relevant to ESOP companies is the relaxation of the SBA's Emergency Injury Disaster Loan (EIDL) program requirements.

Section 1110 of HR 748 notes that ESOPs with fewer than 500 employees are now eligible for EIDL grants until December 31, 2020. $10 billion has been specially allocated for EIDL grants in relation to the Coronavirus epidemic.

Historically, EIDLs have offered up to $2 million in low-interest rate financing, over 30-year terms, with a one-year deferral on the loan's first month payment. Under the CARES Act, EIDL provisions have been further expanded as follows:

  • Personal guarantees on loans of $200,000 or less have been removed for all applicants
  • The one year of operations requirement has been waived, although applicants must have been in business prior to January 31, 2020
  • Applicants do not need to prove an inability to obtain credit elsewhere.
  • Approval can be based solely on an applicant’s credit score (neither tax return nor repayment ability measures are required)
  • An emergency cash grant of up to $10,000 is available and can be forgiven if the funds are used to:
    • Cover paid sick leave to employees directly impacted by Coronavirus
    • Maintain payroll to retain employees
    • Meet increased costs due to supply chain interruptions
    • Pay rent or mortgage obligations
    • Repay other unmet obligations due to revenue losses

For more information or to apply for an EIDL grant, visit the SBA’s disaster assistance portal.

Overall, the CARES Act significantly expands SBA’s lending programs. This includes $349 billion to guarantee loans to small businesses impacted by the Coronavirus. If you have questions about how the CARES Act relates to your planned or current ESOP, our team is available to assist. Click here to schedule a call.