Month: March 2020

CARES Act Summary

The maximum amount of the loan you are able to request is the lesser of:

• 2.5 times your average monthly payroll in 2019 (salaries in excess of $100,000 cannot be counted)
• $10,000,000

It is not known what lenders will specifically require for these loans however, having the following reports/documents prepared and available should help:

• 2019 941’s (Employer’s Quarterly Federal Tax Return)
• 2019 State Specific Employer’s State Tax Returns—typically for State Unemployment Tax and other local/state required payroll taxes
• Printed reports of gross payroll amounts (in Quickbooks—Payroll Summary Report)
• Any other payroll related reports specific to your businesses or state of business

What can the loan be used for?

• Payroll costs including salaries, wages, commissions, tips, vacation, parental, family, medical, or sick leave, allowance for dismissal or separation.
• Healthcare benefits including premiums
• Payment of retirement benefits
• Payment of state or local tax assessed on the compensation of employees
• Compensation or income of independent contractor that is wage, commission, income, net earnings from self-employment not to exceed $100,000 in 1 year.
• PPP loans cannot be used to pay salaries in excess of $100,000.
• 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)—lease must have been in force prior to February 15, 2020
• Utilities (including electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020)
• interest on any other debt obligations that were incurred before February 15, 2020.

Loan Forgiveness

• 8 weeks of qualified expenses may be forgiven under certain criteria. (The 8 week period begins on the origination date of a covered loan)
• Qualified expenses include:
  • Payroll costs
  • Any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation)
  • Any payment on any covered rent obligation
  • Any covered utility payment
• The amount of loan forgiveness will be reduced if the average number of full-time equivalent employees during the 8 week forgiveness period is less than the average number of FTE employees at either (a) the period February 15, 2019, to June 30, 2019, or (b) the period January 1, 2020, to February 29, 2020. The employer chooses which period to compare. Employers are encouraged to rehire laid-off workers and as a result, employers will not be penalized if they had a reduced payroll at the beginning of the 8 week forgiveness period.
• To receive full forgiveness employers must keep their employees and pay them at least 75% of their prior-year compensation.

How to apply for Loan Forgiveness

• Banks and lending institutions will need to release guidelines on what is required to apply for loan forgiveness. The legislation requires the following documentation to be provided to your lender, so starting to keep a record of the following documents will be helpful in applying:
  • Documentation verifying the number of FTE employees on payroll and pay rates including Payroll Tax Filings reported to the IRS (Form 941), State income, payroll, and unemployment insurance filings.
  • Canceled checks, payment receipts or other documents verifying payments on covered mortgage obligations
  • Canceled checks, payment receipts or other documents verifying lease obligations
  • Canceled checks, payment receipts or other documents verifying covered utility payments
• Lenders will have 60 days after they receive an application for loan forgiveness to issue a decision.
• Within 30 days of this legislation being signed the Treasury Department will issue more concrete guidelines on loan forgiveness processes.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) passed March 27th, 2020. Details are still emerging but what we do know is that availability for small business relief will come through two main loan programs administered by the Small Business Administration (SBA): the Paycheck Protection Program and the Economic Injury Disaster Loan.

Qualifying businesses may only take advantage of one of these disaster relief programs, but not both.

Paycheck Protection Program (PPP)

The Paycheck Protection Program will distribute $350 billion to small businesses (under 500 employees) and is designed to offer support from February 15 to June 30, 2020, for monthly qualified expenses including payroll (W2 and independent contractor employees), healthcare premiums, rent, mortgage payments, utilities, and interest on current loans. Payroll figures used to determine eligibility amount will be the monthly average payroll from 2019. Employees earning in excess of $100,000 during the covered period (Feb 15-June 30, 2020) would not be included in the loan amount. The maximum amount of the loan is set at $10 million.

If used appropriately, 8 weeks of expenses covered by the loan after the loan origination date can be forgiven and considered a grant. The amount forgiven can be reduced if employees were laid off or wages reduced. You can rehire employees to gain full forgiveness. The amount not forgiven will have a maximum interest rate of 1%, amortized over 10 years. 

To qualify for this loan, you will need to prove that you were operational as of February 15, 2020. This loan program waives the credit elsewhere test, cash flow assessment, personal guarantees, and required collateral. Additional qualifications include a good faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19, and that you will use the funds to retain workers and maintain payroll, lease, and utility payments. There are no borrower or lender fees to use this program.

The best way to apply is through a local community bank. If you already have a relationship with an SBA lender partner now would be the time to reach out and find out how they are handling applications and to be put on their interest list.

If you do not have a community bank relationship, reaching out to an SBA lender partner bank would be the best strategy. Many are establishing a list of interested parties who will be contacted when details are released. This legislation also allows for more banks to be SBA-approved lenders, increasing the availability of loans.

Emergency Economic Injury Disaster Loans (EIDL)

EIDL will distribute $10 billion to small businesses (under 500 employees) and is designed for those businesses that need more assistance than the PPP. This loan program is typically used in areas that have a disaster and need funding for the business to stay afloat during the rebuilding period. EIDL will be greatly expanded to address small business needs from COVID-19. 

Personal guarantees are not required on loans of less than $200,000. During this emergency EIDL period (until December 31, 2020) the SBA will only look at an applicant’s credit score to approve and offer this loan program. If you are eligible to apply for an EIDL, you will need to complete an EIDL application and certify under penalty of perjury that the funds are needed in response to business disruptions from COVID-19. Once the application and certification are complete, you will be distributed $10,000 within 3 business days while the application is under review.

If it is determined that you do not qualify for an EIDL you will keep the $10,000 without the requirement to pay it back.  Advance payments may be used for providing paid sick leave to employees, maintaining payroll, meeting increased costs to obtain materials, making rent or mortgage payments, and repaying obligations that cannot be met due to revenue losses.

If you apply to both the PPP and EIDL programs, you can only take funds from one. If you apply for an EIDL first, an advance payment will be considered when determining loan forgiveness if the applicant transfers into a loan made under the SBA’s Paycheck Protection Program.

The EIDL rate is capped at 4% and repayment terms are 30 years. This loan program will be administered by the SBA directly on their website; however, you will need to wait until the legislation is signed into law before you can apply. As of right now, you cannot yet apply online.

If you have an existing SBA loan prior to the COVID-19 crisis, it is recommended that you speak with your SBA representative about these newly available relief loans. Please note: the CARES Act is at the federal level and participation in the CARES Act does not disqualify you from state-level support, so it is recommended you explore both options.

Access to the full text of the CARES Act can be found below, and we will be posting more updates as they become available. 

Links

General overview of CARES Act

Full Bill Link

State level links

SBA EIDL

Resources

PSIvet members can work with CreditBench to help process Paycheck Protection Program application. Please find out more details here.