Grant or a Loan? SBA Loan Advance Sends Mixed Message

With Coronavirus impacting individuals, small businesses, corporations, and investors across the board, Congress has passed the CARES Act, which contains $376 billion in relief for American employees and small businesses.

Many news outlets and organizations have taken note of the $10,000 “grant,” and have encouraged small businesses to take advantage of this “grant.”

The SBA properly names it as “Economic Injury Disaster Loan Emergency Advance,”which guarantees up to $10,000 in economic relief to businesses currently experiencing temporary difficulties as a result of the self distancing procedures set by the US government.

The U.S. Small Business Administration (SBA) properly names it as “Economic Injury Disaster Loan Emergency Advance,”which guarantees up to $10,000 in economic relief to businesses currently experiencing temporary difficulties as a result of the self distancing procedures set by the US government. SBA states that the loan advance will not have to be repaid.

It is important to note however, that this is a loan program and not a grant program. The EIDL advances up to $10,000 and sets payback interest rate at 3.75 percent for 30 years. Of course, this loan has a forgiveness clause built in, meaning that if the business can provide documents showing it paid for business necessities such as rent, utilities, wages, then it would be forgiven.

Given the nature of the emergency, many businesses will be tempted to apply for this “grant,” and certainly, it is not a bad idea.

However, this is not “free money,” and should be accounted for as a loan with loan forgiveness clause built in.

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