COVID-19 Relief Resources for Small Business Owners
The CARES Act was recently signed into law, and with it included a $350 billion allocation for the Paycheck Protection Program and $10 billion for the SBA Disaster Loan Program. Both of these are immediately available for small business owners throughout the country to apply.
The Paycheck Protection Program in particular, is a potentially forgivable loan to cover your business expenses for payroll, rent, interest, and utilities through the end of June. We highly recommend that all small business owners with less than 500 employees apply.
The SBA Disaster Loan Program
Q: What businesses are eligible to apply?
A: Any business that is affected by COVID-19, has less than 500 employees and was in operation before February 1, 2020, is eligible to apply.
Q: How do I begin the loan application process?
A: Apply online with a simple application by clicking here. (insert link to application)
Q: What is the most amount of money my business may receive?
A: Your business may receive a loan for up $2 million. The amount of the loan will depend on a variety of factors (i.e. loss in revenue, payroll costs, rent payments, etc.)
Q: Is there a fee to apply?
A: For loans of $25,000 or less, there are no application or processing fees. For all loans greater than $25,000 there will be a $100 processing fee that will be added to the amount of the loan.
Q: What is the interest rate?
A: The interest rate is 2.75% for non-profit entities and 3.75% for for-profit entities.
Q: What is the term of the loan?
A: Loan terms are up to 30 years.
Q: When does repayment start?
A: Repayment start 12 months from the disbursement date of the loan.
Q: What can I use the loan proceeds for?
A: You may use the loan proceeds for any of the following: payroll costs, salaries, sick leave, rent or mortgage payments, material costs, and pre-existing debt.
Q: Is there a personal guarantee?
A: There are no personal guarantees for loans $200,000 or less. There is a personal guarantee for loans greater than $200,000.
Q: Is collateral required?
A: No collateral is required for loans less than $25,000. Collateral is required for loans $25,000 or greater; however, there is no specific collateral required. A blanket UCC- 1 will be filed for all business collateral.
Q: What information is the SBA using to underwrite the loan?
A: The SBA may approve an applicant based solely on the credit score and shall not require an applicant to submit a tax return or a tax return transcript for approval.
Q: What is the emergency advance?
A: Eligible businesses may be eligible to apply for a advance of up to $10,000 that may be requested immediately. There is no requirement to repay the advance even if your business is denied for the SBA Disaster Loan.
Q: Who is eligible for the emergency advance?
A: Any business that is eligible to apply for the SBA Disaster Loan, small business concerns, private nonprofit organizations, and small agricultural cooperatives.
Q: What can I use the emergency advance for?
A: The business can use the funds to pay sick leave for employees who are unable to work due to a direct effect of COVID-19, payroll, materials, rent or mortgage payments, repaying outstanding obligations.
Q: How long do I have to apply for the advance?
A: The program ends on December 31, 2020.
Applications may be submitted at http://covid19relief.sba.gov
The Paycheck Protection Program
The CARES Act made provision for an Emergency Loan program known as the Paycheck Protection Program. The implementation of this program has not been finalized, and the program will not commence until later this week. Below are items to keep in mind and compile for the upcoming Program:
Confirm IF you meet the following criteria:
1. Borrower must be for profit OR a 501(c)(3); AND
2. Borrower must employ 500 or fewer people as either employees for whom it paid salaries and payroll taxes, or as independent contractors; AND
3. Borrower must have been in operation as of February 15, 2020 and had employees for whom it paid salaries and payroll taxes, or as independent contractors; AND
4. Borrower must make a good faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19; AND
5. Borrower certifies that proceeds will be used to retain workers, maintain payroll, lease, and utility payments; AND
6. Borrower certifies that it is not receiving duplicative funds for the same uses from another SBA program.
Borrower is eligible to apply for up to $10 million to cover payroll support, such as employee salaries, paid sick or medical leave, insurance premiums, and mortgage, rent, and utility payments. The amount available to the Borrower is limited to two and half (2.5) times the average monthly payroll, with any individual employee salary capped at $100,000 on an annualized basis for purposes of this computation.
The loan may be eligible for forgiveness. The amount that may potentially be forgiven is the amount spent on payroll support, such as employee salaries, paid sick or medical leave, insurance premiums, and mortgage, rent, and utility payments during the 8-week period after the loan origination date, as long as salaries and wages are not reduced by more than 25%. The eight weeks cannot go beyond June 30, 2020. While forgiveness of debt is usually taxable income, it is not for these forgiven loans. Principal and interest for the first six months of the loan are paid by the SBA.
Loans made under this program will be unsecured loans and will not require collateral nor personal guarantees.
The maximum rate on the loan is 4%.
The Borrower may be able to defer payments up to 12 months.
Appendix D attached is from the U.S. Chamber of Commerce and gives additional information on the Paycheck Protection Program.
How to prepare to apply for this Program?
Begin to determine eligibility amount, which is a function of the number of the customer’s payroll costs.
In order to realize any loan forgiveness, those enrolling in the program must also be prepared to identify for the 8-week period following the loan origination: payroll costs, mortgage interest, rents, utilities, and those employees who are tipped, the additional wages paid via tips.
More importantly, reductions in employment or wages that occur during the period beginning on February 15, 2020, and ending 30 days after enactment of the CARES Act, (as compared to February 15, 2020) shall not reduce the amount of loan forgiveness IF by June 30, 2020 the borrower eliminates the reduction in employees or reduction in wages. Clients may wish to consult with their accounting professionals in performing the calculations that will be required to meet the terms of forgiveness.
Anticipated documentation that may be reviewed with the Program Application:
Financial statements – interim 2020 income statement and balance sheet and full year 2019 income statement and balance sheet
Tax returns – last three (3) years of federal returns for business
2019 payroll information
Current organizational documents – such as Bylaws, Articles, and Operating Agreements
General liability insurance information
Current building lease and any amendments.
More information on this program is available here. We will provide an update on where to apply once this becomes available.
In addition to these two programs available from the Federal government, your state may provide additional relief and bridge loans available through your local SBDC Office. For more information on this, please visit https://americassbdc.org/coronavirus-information/