This letter summarizes the Small Business Administration Loan (SBA) highlights of the $2.2 trillion bipartisan CARES Act signed into law on March 27, 2020. We expect to continue to provide updates as more guidelines about the SBA programs become available.
Paycheck Protection Program (PPP)
Program Overview:
The Paycheck Protection Program is designed to provide a direct incentive for small businesses to keep their workers on payroll by providing each small business a loan up to $10 million for payroll and certain other expenses.
If all employees are kept on payroll for eight weeks, SBA will forgive the portion of the loans used for payroll, rent, mortgage interest, or utilities. Up to 100 percent of the loan is forgivable.
Eligibility:
Businesses – including eligible non-profits, Veterans organizations, Tribal concerns, sole proprietorships, self-employed individuals, and independent contractors described in the Small Business Act – with 500 or fewer employees may apply.
Businesses in certain industries may have more than 500 employees if they meet the SBA’s size standards for those industries.
Nature of this Loan:
This loan will not require a personal guarantee, there will be no collateral requirement and the loan will be non-recourse. You can only apply for one Paycheck Protection Program loan. The borrower will need to certify as part of the loan application that the uncertainty of the economic climate necessitates the loan. Neither the government nor lenders will charge small businesses any fees.
Loan Size:
Depending on your business’s situation, the loan size will be calculated in different ways (see below). The maximum loan size is 250% of your average monthly payroll and the maximum cap at $10 million.
For purposes of calculating “Average Monthly Payroll”, depending on your circumstances here are the ways to complete the calculation:
- Existing Businesses (In business 2/15/19 - 6/30/19) - The applicant will calculate average monthly payroll for 2019, excluding costs over $100,000 on an annualized basis for each employee.
- Seasonal businesses - The applicant may elect to instead use average monthly payroll for the time period between February 15, 2019 and June 30, 2019, excluding costs over $100,000 on an annualized basis for each employee.
- New businesses (If you were not in business 2/15/19 - 6/30/19) - The applicant will calculate the average monthly using the time period from January 1, 2020 to February 29, 2020, excluding costs over $100,000 on an annualized basis for each employee.
Eligible Payroll Costs to
determine Loan Size:
- Compensation (salary, wage, commission, or similar compensation, payment of cash tip or equivalent) capped at $100,000 per employee;
- 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
What costs are not eligible for payroll cost calculation?
- The portion of employee/owner compensation over $100,000. For example if an employee earns $200,000, only $100,000 is eligible for the calculation.
- 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
Loan Forgiveness Provision:
The loan will be fully forgiven if the funds are used over the eight week period after the loan is made (“Covered Period”) for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll).
Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.
Please note the Covered Period is the 8 week period compared to the previous year or time period.
To obtain loan forgiveness, you must submit a request with proper documentation to the lender servicing the loan. More information will be made available in the coming weeks.
Unforgiven Loan Provision:
All payments are deferred for 6 months after disbursement of the loan; however, interest will continue to accrue over this period. Any loan amounts not forgiven are carried forward as an ongoing loan with max terms of 2 years, at an interest rate of 0.50%.
Additional Loan Elements:
There are no prepayment penalties or fees. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.
Loan Application Process:
At this time draft loan application has been uploaded to the SBA website and here is a
link
to the loan application. We anticipate many banks will be a part of the program. Here is a
link
to SBA website about the paycheck protection program as information will continue to be updated.
Dates to Apply for the Loan:
- Small Business and Sole Proprietorships - April 3, 2020
- Independent Contractors and Self Employed Individuals - April 10, 2020
Where to apply:
Currently you can apply for the Paycheck Protection Loan through existing SBA Lenders. Other regulated lenders will be available to make these loans once they are approved.
Economic Injury Disaster Loans and Loan Advance (EIDL)
Program Overview:
In response to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an Economic Injury Disaster Loan of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
In addition to the Economic Injury Disaster Loan your business can receive an immediate advance of up to $10,000 within 3 days of a successful application which would not be required to be repaid under any circumstances. You would apply for this when you apply for the Economic Injury Disaster Loan.
Eligibility:
Businesses – including sole proprietorship, self-employed individuals, independent contractors, cooperatives, employee owned businesses, and tribal businesses described in the Small Business Act – with 500 or fewer employees may apply.
Businesses in certain industries may have more than 500 employees if they meet the SBA’s size standards for those industries.
Please note there are certain non-profit organizations that are not eligible.
Nature of this Loan:
Collateral is required for all EIDL loans over $25,000. SBA takes real estate as collateral when it is available. SBA will not decline a loan for lack of collateral, but SBA will require the borrower to pledge collateral that is available.
Loan Size:
Loans of up to $2 million.
Eligible use of Funds:
Expenses that could have been met had the disaster not occurred, including working capital such as payroll and other operating expenses.
Loan Repayment Provision:
The EIDL will have a maximum interest rate of 3.75% and will be payable of a term of up to a maximum of 30 years. SBA will determine an appropriate installment payment based on the financial condition of each borrower, which in turn will determine the loan term. Please note if you are approved for the Economic Injury Disaster Loan advance of $10,000 it does not need to be repaid.
Loan Application Process:
Additional Questions
Can I apply for both Loans?
Yes you can apply for both loans. Please note both loans can be applied for but they cannot be used for the same purposes.
What do I do now?
Consider applying for one or both loans if applicable and gathering information to fill out loan applications including: personal financial statements, company financial statements, and payroll information, benefits (Health Insurance and Retirement) information related to your business entity.
We understand you may have many questions regarding the SBA programs. We will continue to send updates as new information becomes available.
Contact us with any questions or concerns as they arise. We are here to help you.
