CARES Act Programs Are Positioned to Provide Economic Assistance for RTO Businesses

April 9, 2020, Washington, D.C. – Now that Congress has passed the $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act, many rent-to-own businesses are positioned to benefit from this legislation’s unprecedented economic resources. The availability of $367 billion in Small Business Administration loans and grants is welcome news for the RTO community.

Whether a business needs capital to retain its existing employees or re-hire those it recently laid off; an immediate infusion of cash to pay pressing bills; or assistance making timely payments on an SBA loan during the economic slowdown, the CARES Act is structured to help.

The SBA defines “small businesses” as any business entity with fewer than 500 employees.  Those operating as a franchise and those that receive funds through a Small Business Investment Company are also eligible to participate in CARES’ rescue programs.

The Paycheck Protection Program

The Paycheck Protection Program (PPP) provides loans to small businesses that maintain their full workforce during the Act’s covered period, between February 15 and June 30, 2020. Loans do not have to be repaid if recipients do not lay anyone off in the period. Employers can immediately re-hire and pay any workers they have laid off since mid-February of this year.

Any small businesses can apply for up to a $10 million PPP loan if they have been adversely affected by the COVID-19 pandemic. The specific loan amount for each business is calculated as 250 percent of its average monthly payroll costs during the covered period. In addition to payroll expenses, loan proceeds can be used to pay employee health benefits, business mortgage interest, business rent and utilities and interest on existing business debts.

Businesses that receive PPP loans can also apply for Economic Injury Disaster Loans, and other SBA and Small Business Investment Corporation loan products, but the proceeds from each loan must be used for a different purpose, such as covering the payroll for different employees.

Small Business Debt Relief Program

This program provides expedited access to non-disaster SBA loans – including 7(a), 504 and microloans, except that 7(a) loans made under the PPP Program are not included. It covers the borrower’s payments on these loans – including principal, interest and fees – for six months.

There are many 7(a) loans, all of which provide up to $5 million for small business borrowers that lack credit elsewhere and require access to versatile financing for a range of business purposes. In contrast, 504 loans provide up to $5.5 million with long-term, fixed-rate financing for the acquisition of fixed assets for business expansion or modernization and microloans provide up to $50,000 to help certain small businesses start up or expand, with an average loan size of $13,000.

The Debt Relief Program is available to new borrowers whose loans are funded by late September 2020.

Economic Injury Disaster Loan (EIDL) and Emergency Economic Injury Grants

The CARES Act expanded the existing EIDL program to certain businesses affected by COVID-19. EIDLs are lower interest loans of up to $2 million, with principal and interest deferment at the SBA Administrator’s discretion. They can be used to pay expenses that could have been met had the Covid-19 pandemic not occurred, including payroll and other operating expenses.

Eligible small businesses include sole proprietorships, independent contractors, cooperatives, employee-owned businesses and most nonprofits of any size.

Emergency Economic Injury Grants provide an immediate advance of $10,000 with no personal guarantee required to entities eligible for an EIDL. These advances do not have to be repaid under any circumstances. RTO businesses that support veterans’ organizations and other nonprofits may wish to help their favorite charitable organizations access these two programs.

Finding Lenders and Loan Application Forms

This SBA Coronavirus Relief Options Page helps find participating lenders and loan application forms for these programs.