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The novel coronavirus (COVID-19) has shaken industries and economies across the world. If you’re like many small business owners right now, you are probably sitting in your home worrying non-stop about how your small business will make it through this crisis. The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocates more than $2 trillion in support for individuals and businesses as they attempt to navigate this time, and several banks and financial institutions are offering relief as well.

But with the constant flood of information from various sources, it can be difficult to determine what’s right for you or if you even qualify. So, we decided to take the burden out of having to do all the research on your own by providing you with the information you need in one place.

Assistance for Small Businesses from US Small Business Administration

The US Small Business Administration (SBA) is offering low-interest federal disaster loans to small businesses who suffer from economic injury during the COVID-19 pandemic. The loans are to be used as working capital for payroll or paying fixed debt, accounts payable, or other bills. Adding to SBA’s traditional funding programs, the CARES Act, which contains $376 billion in relief specifically for American workers and small businesses, established several new temporary programs to address the effects of COVID-19. Here’s a quick snippet of each:

  • Economic Injury Disaster Loan (EIDL) – This program offers businesses the opportunity to receive a low-interest loan of up to $2 million with a loan advance providing up to $10,000 of economic relief to businesses that are currently experiencing technical difficulty.
  • Paycheck Protection Program (PPP) – This loan program provides loan forgiveness for retaining employees by expanding the traditional SBA 7(A) loan program.
  • SBA Debt Relief – A financial respite to small businesses during the COVID-19 pandemic.
  • SBA Express Bridge Loans – Enables small businesses who currently have a relationship with an SBA Express Lender to access up to $25,000 quickly.

Diving into SBA Disaster Relief Loans

Before you file anything with the government, it’s recommended to take other actions first. Check with your bank, other lenders, credit card companies, and even some of your vendors to request deferrals of payments, reductions of payments, and other considerations that would be appropriate from a particular vendor. Many banks are offering deferrals up to 90 days or more of loan payments, while credit card companies are offering skipped payments without interest. If you work with a variety of vendors, most will likely provide some relief if needed, too. Reaching out to creditors such as these could preserve cash flow in the short run.

What is the Economic Injury Disaster Loan (EIDL)?

Short story: the loan program can provide up to $2 million in financial assistance to your small business or private, non-profit organizations that are suffering substantially economically as a result of the declared disaster. However, it does have a loan advance of up to $10,000 for businesses that are currently experiencing a temporary loss of revenue. The funds will be made available within days of a successful application, which means if you’ve already experienced a temporary loss of revenue this could be a quick reprieve.

Eligibility for EIDL through SBA

This loan is for any small business with less than 500 employees, including sole proprietorships, independent contractors, and self-employed persons. Private non-profit organizations or 501(c)(19) veterans organizations affected are also eligible for this program. There are certain industries where a business could have more than 500 employees and still be eligible, if they meet the SBA’s size standards for that industry. There are a few credit requirements, as well. Applicants must have an acceptable (by SBA terms) credit history, show they have the ability to repay the loan, and collateral is required for a loan of more than $25,000.

Loan Terms, Interest Rates, & Limits

By law, the loan terms can be authorized up to a maximum of 30 years, and the SBA will determine an appropriate installment payment based on the financial conditions of each borrower, which will determine the loan term. The interest rate of the loan is fixed for the life of the loan as follows:  3.75% for business and 2.75% for non-profit. The loan is limited to $2 million for alleviating economic injury caused by the disaster. The actual amount of the loan is limited to the economic injury determined by SBA. As with all loans, there are some fine print conditions, but most have to do with how the SBA will determine the amount of the loan you receive.

How to Apply for an EIDL

The SBA has streamlined the process requirements across the board for their loans. To apply, you’ll need to visit the SBA’s website. Have information about your business on hand such as your EIN, gross revenue, cost of goods sold, and other details that may be specific to your industry. The SBA recommends having a couple of hours to fill out the full application, but there may be areas that do not apply to your business. Though this loan is not designated as forgivable, if you have already received the loan or applied before the Paycheck Protection Plan was available, speak with the lender you are planning to use for the PPP loan about refinancing the portion of the EIDL loan you had designated for payroll costs and/or any payment of interest on any covered mortgage obligations into a PPP loan that could be forgiven.

How Does the Paycheck Protection Program Work?

The Paycheck Protection Program (PPP) authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. The goal is to help businesses stay open by providing 8 weeks of cash-flow assistance which in turn provides a direct incentive for small businesses to keep workers on the payroll.

Extra Perk: The loan amounts will be forgiven if the loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs after the loan is made; AND employee and compensation levels are maintained.

Eligibility for PPP through SBA

All businesses – including nonprofits, veterans organizations, sole proprietors, independent contractors, self-employed – with 500 or fewer employees are eligible. The same exceptions for businesses in certain industries with more than 500 employees applies with this program, too. There’s also the clause of small businesses in hospitality and food industry with more than one location could also be eligible if their individual locations employ less than 500 workers.

PPP Loan Details and Forgiveness

As previously mentioned, the loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities*. Loan payments will be deferred 6 months, and no collateral or personal guarantee are required. The program is only open through June 30, 2020, and it’s recommended you apply as quickly as you can due to the funding cap and the time it will take lenders to process your loan. As for loan limits, loans can be 250% of average weekly payroll and is subject to a $10 million cap. If you are seasonal or a new business, you will use different applicable time periods for your calculations. Payroll caps will also be capped at $100,000 annualized for each employee.

Forgiveness of the loan is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced proportionately if full-time head-count declines, or if salaries and wages decrease.

The loan has a maturity of 2 years and an interest rate of 1%. There are no prepayment penalties or fees associated.

*Due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll.

How to Apply for Paycheck Protection Program

Beginning Friday, April 3, 2020, lenders may start to process loan applications. The PPP is available through June 30, 2020. You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be able to make these loans upon approval and enrollment in the program. If you are wondering if a lender is participating, check their website or give them a call.

The initial application for determination regarding eligibility itself is pretty straightforward, but you will need to be able to certify:

  • Current economic uncertainty makes the loan necessary to support your ongoing operations.
  • The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.
  • You have not and will not receive another loan under the PPP loan program.
  • You will provide to the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan.
  • Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
  • All the information you provide in your application and in all supporting documents and forms is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law.
  • You acknowledge that the lender will calculate the eligible loan amount using the tax documents you submit. You affirm that the tax documents are identical to those you submitted to the IRS. And you also understand, acknowledge, and agree that the lender can share the tax information with the SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.

The lender you are going through will most likely need additional information from you to complete your application.

What if I applied for or received an EIDL before the PPP became available?

If you fall in the category of those who received an EIDL loan related to COVID-19 between January 31, 2020, and when the PPP becomes available, you will be able to refinance your EIDL into a PPP loan for loan forgiveness purposes. However, you may not take out an EIDL and a PPP for the same purposes, and the remaining portions of the EIDL that were for other items than those laid out in the loan forgiveness terms for PPP loans would remain a loan. If you took advantage of the EIDL emergency grant of up to $10,000, that amount would be subtracted from the amount forgiven under PPP.

SBA Debt Relief Details

As a part of SBA’s debt relief efforts, they will be taking these two actions:

  1. The SBA will automatically pay the principal, interest, and fees of current 7(a), 504, and microloans for a period of six months.
  2. The SBA will also automatically pay the principal, interest, and fees of new 7(a), 504, and microloans issued prior to September 27, 2020.

Additional Debt Relief

For Current SBA Service Disaster Loans, if your disaster loan was in “regular servicing” status on March 1, 2020, then SBA is providing automatic deferments through December 31, 2020. For full details on automatic deferral, check out this article on the SBA site.

SBA Express Bridge Loans

This program allows small businesses who currently have a business relationship with an SBA Express Lender to receive up to $25,000 quickly. These loans will provide vital economic support to small businesses while helping them overcome the temporary loss of revenue. These loans can be term loans or used to “bridge the gap” while applying for a direct SBA Economic Injury Disaster Loan (EIDL). If you are a small business that has an urgent need for cash while waiting for decision and disbursement on an EIDL, you may qualify for this type of loan.

Notable Terms:

  • Up to $25,000
  • Fast turnaround
  • Will be repaid in full or in part by proceeds from the EIDL

Advice from Accounting Professionals Regarding SBA Disaster Relief Loans

As a small business ourselves, please know that we understand and sympathize with other business owners during this tumultuous time of economic uncertainty. We are here for you to help provide advice and assistance in any shape or form. For business clients, we have formed our “COVID-19 Financial Disaster Response Team,” whose main function and focus is to assist you in obtaining financial relief from the Federal government. Our three-pronged approach (before applying, EIDL application, and PPP application) takes into consideration much of what was discussed in the above information. Here is our advice to you:

  1. Check with your current lenders, credit card companies, and even some vendors to request deferrals of payments, reductions of payments, and other considerations before filing anything with the government.
  2. We suggest you apply for both forms of government relief: EIDL and PPP.
    1. EIDL – we will work with you to either prepare the filing for you with the SBA by contacting you for certain information during the process; OR if you are wanting to do it yourself, we will compile any information from our files that you will need.
    2. PPP – you will need to contact your bank or other lender who is qualified to issue 7(a) loans. If you are unsure or do not have one of these, we can also recommend one. We will then work with you to compile the necessary information to supply the lender who will set up the grant on your behalf, or you can compile and provide the information to your lender yourself.

Our team will work with you to develop a plan that fits your needs. Whether you would like us to take the wheel and do a full filing for the EIDL loan or just assisting you by gathering documents rest assured knowing we will take care of you.

To learn more about opportunities available to you, contact us today either online or by calling the business advisory and tax consultants near you.

NOTE: Please, be aware that all the rules and regulations have yet to be determined; therefore, this is still a fluid situation. However, by proceeding with filing for both the EIDL and PPP relief, the burden is shifted to the government to either accept the information supplied and apply the changing rules to the data in hand or to reject the application and identify the deficiencies which must be corrected. In either case, the process will have been advanced and the loan proceeds allowable will be received sooner rather than later.

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