This is an UPDATE to our Emergency Economic Relief alert dated March 24, 2020
Since we last wrote on this topic, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020. The CARES Act includes a new $350 billion loan program called the Paycheck Protection Program (PPP), which authorizes loans to qualifying small businesses who maintain their payroll during this emergency. This program is available to businesses with 500 or fewer employees to help with payroll, rent, utilities, healthcare costs and more. This new loan program is based on the SBA’s existing 7(a) loan program and will make forgivable loans of up to $10 million available to qualifying small businesses.
As part of CARES, the SBA has also updated the Economic Injury Disaster Loan program (EIDL). The program is now available across the entire U.S. and has a streamlined application process with a quick approval turnaround time. The program also allows for an EIDL advance/grant of $10,000 that is not required to be paid back for those experiencing a temporary loss of revenue.
Additionally, debt relief is provided under CARES on other SBA loans that are not under EIDL or PPP, such as new (made within 6 months of the new law) or on existing 7(a), 504, or micro SBA loans.
Applications are now available for both loan programs (links below). But now that there are multiple options available, you need to take some time to carefully consider which program suits your Company’s needs best. You cannot have loans outstanding under both programs for which funds are used for the same purpose. However, because EIDL program was available first, if you already applied for or have the EIDL, you can pay that off with the PPP loan if you find the PPP program more attractive. You can also apply for both at the same time and choose one later.
To help you get started learning about your options, we have summarized the basics under the programs below.
SBA EIDL Loan and Loan Advance/Grant Program
1. Program is run by the SBA itself
2. Who is eligible: U.S. Businesses, Private non-profits (as defined), sole proprietors, independent contractors and more are eligible, with under 500 employees and under $35 million in revenue.
3. Loans up to $2 million
4. Applicants can apply for a $10,000 advance/grant, that does not need to be repaid if you were in operation since January 31, 2020. Grants are backdated to January 31, 2020 in case you already applied for an EIDL. To get the grant, apply for the loan first, then apply for the grant
5. Rate: 3.75% for small businesses and 2.75%. for non-profits
6. Terms: Up to 30-year payment term, starting one year after loan origination with accrual of interest, no prepayment penalties
7. You may use proceeds to pay expenses that could have been met had the disaster not occurred, including payroll and other financial obligations and operating expenses.
8. Does not matter if you have employees or not
9. Collateral: is UCC on assets of the business
10. Personal guarantees: are required by 20% or more owners for loans > $200,000
11. The loan is not able to be forgiven, other than the $10k loan advance/grant
12. Limited to one EIDL loan
Paycheck Protection Program (PPP) Loans
1. Program is part of the normal SBA 7(a) program, and handled by banks that provide SBA 7(a) program loans
2. Who is eligible: U.S. Businesses, Private non-profits (as defined), sole proprietors, independent contractors and more are eligible, with under 500 employees in operation since February 15, 2020. Additional rules for multiple locations and franchises also apply.
3. Loans up to $10 million calculated as one of the following:
- Generally: Your max loan is equal to 250 percent of your average monthly payroll costs during all of 2019, excluding costs over $100,000 on an annualized basis for each employee.
- Seasonal option: If you were in business February 15, 2019 – June 30, 2019: Your max loan is equal to 250 percent of your average monthly payroll costs for this period, excluding costs over $100,000 on an annualized basis for each employee.
- If you were not in business between February 15, 2019 – June 30, 2019: Your max loan is equal to 250 percent of your average monthly payroll costs between January 1, 2020 and February 29, 2020, excluding costs over $100,000 on an annualized basis for each employee.
- If you took out an Economic Injury Disaster Loan (EIDL) between February 15, 2020 and June 30, 2020 and you want to refinance that loan into a PPP loan, you would add the outstanding loan amount to the payroll sum.
4. No related grants or early advances
5. Rate: up to 4%
6. Term: Up to 10-year payment term (for what portion is not forgiven), starting 6 months after loan origination with accrual of interest, no prepayment penalties
7. You may use proceeds to pay the following with loan proceeds:
- Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
- Employee salaries, commissions, or similar compensations (see exclusions below)
- Payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation)
- Rent (including rent under a lease agreement)
- Interest on any other debt obligations that were incurred before the covered peri
- Payroll costs – eligible costs of Payroll…
- Compensation (salary, wage, commission, or similar compensation, payment of cash tip or equivalent)
- Payment for vacation, parental, family, medical, or sick leave
- Allowance for dismissal or separation
- Payment required for the provisions of group health care benefits, including insurance premiums
- Payment of any retirement benefit
- Payment of State or local tax assessed on the compensation of employees
…Do NOT include:
- Employee or owner compensation above $100,000 per employee on an annualized basis
- Taxes imposed or withheld under chapters 21, 22, and 24 of the IRS code
- Compensation of employees whose principal place of residence is outside of the U.S.
- Qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act
8. The point of this loan is to keep your employees working. Loan forgiveness is tied to how you keep employees
9. Collateral: Is NOT required from either the business or its owners
10. Personal guarantees: are NOT required
11. The loan IS eligible for forgiveness calculated as follows:
a. Forgiveness on a covered loan is equal to the sum of the following payments made by the borrower during the covered 8-week period beginning the date of the loan:
- payroll costs + interest on any covered mortgage obligation (mortgage in force before Feb 15, 2020) + payment on any covered rent obligation (lease in force before Feb 15, 2020) + any covered utility payment in service before Feb 15, 2020
b. The amount of the loan provision that may be forgiven is decreased if the borrower either reduces its workforce during the 8-week covered period when compared to other periods in either 2019 or 2020, or reduces the salary or wages paid to an employee who had earned less than $100,000 in annualized salary by more than 25% during the 8-week covered period.
c. This loan forgiveness reduction can be avoided, however, if the borrower rehires or increases the employee’s pay within an allotted time period, beginning on February 15, 2020 and ending on the date that is 30 days after the enactment of the CARES Act.
d. Any amount NOT forgiven is carried forward as an ongoing loan up to 10 years at 4% interest.
12. Limited to one PPP loan per EIN
HOW DO I APPLY?
Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
We can help you find an approved SBA lender.
This is the SBA link for more PPP information https://www.sba.gov/funding-programs/loans/paycheck-protection-program-ppp.
This is the link for the PPP loan application https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Application-3-30-2020-v3.pdf. SBA lenders may have more document requirements.
Small Business Debt Relief:
1. SBA will cover all loan payments including principal, interest, and fees for six months on SBA loans not under EIDL or PPP, such as new loans made within 6 months of the new law or on existing 7(a), 504, or microloans.
2. Borrowers with these SBA loans may also apply for a PPP loan, but debt relief will not apply to the PPP loan.
3. SBA loans are provided by various banks that provide SBA program loans
If I have applied for, or received an Economic Injury Disaster Loan (EIDL) related to COVID-19 before the Paycheck Protection Program became available, will I be able to refinance into a PPP loan?
Yes. If you received an EIDL loan related to COVID-19 between January 31, 2020 and the date at which the PPP becomes available, you would be able to refinance the EIDL into the PPP for loan forgiveness purposes. However, you may not take out an EIDL and a PPP for the same purposes. Remaining portions of the EIDL, for purposes other than those laid out in loan forgiveness terms for a PPP loan, would remain a loan. If you took advantage of an emergency EIDL grant award of up to $10,000, that amount would be subtracted from the amount forgiven under PPP.
In summary, there is a lot here to consider. Contact us at any time to talk these things through. We are here to help!