CARES Act Help for Small Business Owners

CARES Act Overview

–          On 3/27/2020 Congress passed and the President signed the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”)

–          The law provides more than $2T in emergency economic relief to individuals and businesses affected by the virus crisis through numerous new stimulus and aid programs

–          Law is innovative in targeting aid as quickly as possible to individuals and businesses

Paycheck Protection Program (“PPP”)

What is the PPP?

–          One of the particular programs that will be administered by the Small Business Administration (“SBA”) is the PPP

–          The CARES Act provides for $349B in funding for loans through the PPP, an expansion of the SBA’s existing 7(a) loan program aimed at supporting small businesses and encouraging those businesses to retain their workers

How does it work?

–          Loans made under the PPP can be used to cover costs incurred during the period from Feb 15^th to Jun 30^th; the SBA has authorized lenders to start processing PPP loan applications on April 3^rd

–          The main objective is to keep small businesses operating and their employees working

–          PPP applications are submitted through a bank, not directly with SBA

–          Businesses must apply to the bank where they have their business depository relationship (over 800 institutions in network)

–          In addition to the application, borrowers must submit documentation necessary to establish eligibility such as:

o   payroll processor records

o   payroll tax filings or Forms 1099

–          To be eligible for a loan an applicant must:

o   Have a place of business in the U.S.

o   Operate primarily in the U.S. or make a significant contribution to the U.S. economy through tax, labor and use of products

Who is eligible for PPP?

Small businesses, including sole proprietors, independent contractors, self-employed individuals, nonprofit organizations, tribal business concerns, and Veterans’ organizations, that:

• Employ 500 or fewer people
• Were in business on or before February 15, 2020
• Had employees to whom they paid salaries and for whom they paid payroll taxes or that paid independent contractors
• Have a business checking account as of February 15, 2020

Therefore, in our community, this would include:

–          Hairdresser/beauty supply stores

–          Convenience stores

–          Uber/taxicab drivers

–          Home care providers

–          Truck drivers

–          Churches and religious institutions

How much can a business receive?

·         Maximum loan amount is 2.5x a business’ average total monthly payroll amount for calendar year 2019

·         “Payroll costs” include salary, wages, tips, commissions, paid leave benefits, employer-paid health insurance premiums, and state and local payroll taxes.

What are the terms of the loan?

–          The SBA has waived all otherwise applicable 7(a) fees for PPP loans, and interest rates will be 1%

·         No collateral requirements or personal guarantees are required

·         At least 75% of PPP loan proceeds must be used for “payroll” costs

·         Recipient can use loan proceeds to cover: payroll costs (e.g. salary, wages, medical and retirement benefits), mortgage interest payments, rent, utilities and interest on loans obtained prior to 2/15/20

·         An applicant must certify in good faith that the loan will only be used to cover allowed costs

·         Under the PPP, a business must certify on its application that, it has not and will not receive another PPP loan

–          Lenders must make that payout no more than 10 calendar days after the loan is approved, the agency said.

Can PPP loans be forgiven?

–          Subject to certain limitations, a PPP loan is eligible for forgiveness up to the amount spent by the borrower in the eight-week period after the origination date of the loan

o   Payroll costs, interest payments on any mortgage obligation, payment of rent on any lease and / or payment of any utility – in each case that was in place prior to 2/15/20

–          Forgiveness of non-payroll costs is limited to 25% of the total forgiveness amount

–          The amount of eligible loan forgiveness will be reduced proportionally by the number of employees laid off, and similarly if employees’ salaries are reduced by more than 25%

–          Repayment over two years at 1% interest rate

Expanded Economic Injury Disaster Loan program (EIDL)

Overview:

·         Small business owners in all U.S. states are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000.

·         This advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue.

·         Funds will be made available following a successful application. This loan advance will not have to be repaid.

·         $1,000 per employee for up to 10 employees

Eligibility:

·         Many applicants said they have been told that initial disbursements will be capped at $15,000 per business. S.B.A. representatives did not respond to repeated questions about whether caps have been imposed.

·         Does this program offer loan forgiveness?

o   Partly. Businesses can request up to $10,000 of a disaster loan as a grant. It’s described on the application as a “loan advance,” but S.B.A. officials confirmed that it did not have to be repaid. Borrowers will be on the hook for the rest.

What do I need to know about repayment?

·         The rest of the loan can be repaid on a term of up to 30 years. The interest rate is 3.75 percent for small businesses and 2.75 percent for nonprofits. No payment is due for the first year.

SBA Express Bridge Loans

Overview:

·         Enables small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 quickly.

·         Express Bridge Loan Pilot Program allows small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 quickly.

·         These loans can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing and can be a term loans or used to bridge the gap while applying for a direct SBA Economic Injury Disaster loan.

·         If a small business has an urgent need for cash while waiting for decision and disbursement on an Economic Injury Disaster Loan, they may qualify for an SBA Express Disaster Bridge Loan.

SBA Debt Relief

Overview:

The SBA will automatically pay the principal, interest, and fees of current 7(a), 504, and microloans for a period of six months.

The SBA will also automatically pay the principal, interest, and fees of new 7(a), 504, and microloans issued prior to September 27, 2020.

For these loans, you don’t request an amount. The S.B.A. will determine how much you can borrow using a formula intended to approximate six months of your operating expenses.

The loans cannot be used to refinance previous loans; anything else is fair game. If you use money from a disaster loan to pay your employees, you can try to refinance through the paycheck protection program, which allows for the loan to be forgiven.