COVID 19 SMALL BUSINESS STIMULUS UPDATE
As you know we have been striving to stay on top of the developments as information becomes available. I spent most of today talking with the SBA main office as well as SBA Lenders and how they are preparing for these loans with business owner clients. Even in talking with these experts on the front lines, they have said many times “we just don’t know, this is only 24hrs old”.
We have appreciated the clients who continued to share with us their experiences as they talk with the SBA and banks in order to help shed light on things as they develop.
The main update is the clarification that there are two loan products available to small businesses. The order in which you apply is dependent upon your immediate needs as a business for cash flow. If you are not in an IMMEDIATE NEED (needing funds prior to April 30th) to cover payroll, rent and utilities, then you may choose to wait and apply only for the Payroll Protection Loan – SBA 7(b).
Economic Injury Disaster Loan (EIDL) – Section 7(b) of SBA •
Quick Details – This is a SBA loan with terms and interest and is not forgivable in full (but can be replaceable – see below). This is for those who have an immediate need for cash of $10,000, which is forgivable if used towards payroll expenses, utilities and rent.
- If you are in immediate need of funds to stay in business, we encourage you to apply for this ASAP.
- It is important that this loan is applied for BEFORE the section 7(a) loan discussed below if you wish to participate in both programs.•
- It is ONLY available through the SBA website. If you would prefer to print a paperapplication use the link below if there are website traffic issues:o https://disasterloan.sba.gov/apply-for-disaster-loan/index.html
o Otherwise please use this link to be processed for an application online:https://covid19relief.sba.gov/#/business-info
- Applications made after March 29 will include a box that an applicant can check to request an emergency grant of up to $10,000 which the SBA must provide within 3 business days of grant request. This grant will not have to be repaid even if you are not approved for the loan. For applicants that submitted the application before March 29 and received an SBA loan application number, we are still determining the process you can use to request the grant.
- Terms: 3.75% interest, up to 30-year repayment, 12 months no payments.
- Credit score of applicant is the primary factor in approval.
- $10 billion is set aside for the grant program, and the grants are to be given out FirstCome First Served.
Economic Injury Disaster Loan (EIDL) – Section 7(b) of SBA • (continued)
- The SBA will determine the amount of an EIDL Loan and the loan is available to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses.
- For any loan made under this program, no personal guarantee will be required on loans up to $200,000.
- If an applicant already submitted an application before March 29th and they received a SBA application number, they do not have to re-apply using new forms. If you did not receive an SBA application number please reapply ASAP.
- If you receive EIDL money and you intend to also apply for the Payroll Protection money of 7(a), please consult with your tax advisor to develop an efficient plan for the use of the loan proceeds.Paycheck Protection Loan – Section 7(a) of SBAQuick Details – This loan will take longer to process but will be a forgivable loan if used for payroll, rent and utilities expenses. Max loan amount is 2.5x average monthly payroll from 02/01/19 – 01/31/20.
- This loan is not currently available as of 3/30/20.
- This loan will be provided by SBA approved banks. We encourage you to contact yourbusiness banker for additional information.
- Terms: 4% interest, up to 10-year repayment, 6 – 12 months no payments.
- Loan proceeds are limited to 2.5x average monthly payroll costs (wages, healthinsurance, PTO, retirement benefits and state or local payroll taxes assessed on compensation of employees) not to include federal payroll taxes. This does not include 1099 subcontractors or Employee/Owner Compensation over $100,000.o Based on my conversation with an SBA representative income UP TO $100,000 can be included and should be verified with the loan officer.o Self-employed (1099) individuals are eligible for their own 7(a) loan and loan forgiveness.
- There will be an amount eligible for forgiveness – this amount must be calculated and cannot exceed the sum of the payroll costs, mortgage interest, rent and certain utility payments in the 8-week period following funding. Loan Forgiveness is contingent on having 75% of the number of employees on payroll Feb 15, 2020 by June 30, 2020.o If this is not enough money to keep your employees hired through June then we may need to look at other options or be prepared to not have this loan be forgiven.
- To seek forgiveness, documentation will be provided to the lender that includes the qualified expenses during the 8-week period subsequent to loan closing.
- There is potential for refinancing your EIDL loan into the section 7(a) loan to also make it eligible for forgiveness. Even if you are unable to refinance the EIDL into this loan, you are not prohibited from obtaining both loans.
Anticipated Timeline for you to take into consideration
There have been many questions on the timing of SBA funds and actions to be taken by employers. Below is our hopeful timeline related to the each loan program.
Economic Injury Disaster Loan (EIDL) – Section 7(b) of SBA
- CARES Act signed into law – March 27
- SBA website updated with new online application process – March 29
- Applicants receive phone call from SBA – 3 days after submission
- $10,000 advance hits bank account – within 5 days of submission
- EIDL Loans applications are determined – Within 2 weeks of submission
- EIDL Loans funded – Within 2-3 from submissionPaycheck Protection Program, 7(a) loans:
- CARES Act signed into law – March 27
- SBA Website update for new online application process – TBD
- Banks receive SBA guidance – By April 11
- Initial loans processed and being funded – Late April