CORONAVIRUS EMERGENCY LOANS
The Coronavirus Aid, Relief, and Economic Security (CARES)
Act allocated $350 billion to help small businesses keep
workers employed amid the pandemic and economic
downturn. Known as the Paycheck Protection Program,
the initiative provides 100% federally guaranteed loans
to small businesses.
Importantly, these loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward.
The administration soon will release more details including the list of lenders offering loans under the program. In the meantime, the U.S. Chamber of Commerce has issued this guide to help small businesses and self-employed individuals prepare to file for a loan.
1) Am I ELIGIBLE?
You are eligible if you are:
- A small business with fewer than 500 employees
- A small business that otherwise meets the SBA’s size standard
- A 501(c)(3) with fewer than 500 employees
- An individual who operates as a sole proprietor
- An individual who operates as an independent contractor
- An individual who is self-employed who regularly carries on any trade or business
- A Tribal business concern that meets the SBA size standard
- A 501(c)(19) Veterans Organization that meets the SBA size standard
In addition, some special rules may make you eligible:
- If you are in the accommodation and food services sector (NAICS 72), the 500-employee rule is applied on a per physical location basis
- If you are operating as a franchise or receive financial assistance from an approved Small Business Investment Company the normal affiliation rules do not apply
REMEMBER: The 500-employee threshold includes all employees: full-time, part-time, and any other status.
2) What will lenders be LOOKING FOR?
In evaluating eligibility, lenders are directed to consider whether
the borrower was in operation before February 15, 2020 and had
employees for whom they paid salaries and payroll taxes or paid
Lenders will also ask you for a good faith certification that:
- The uncertainty of current economic conditions makes the loan request necessary to support ongoing operations
- The borrower will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments
- Borrower does not have an application pending for a loan duplicative of the purpose and amounts applied for here
- From Feb. 15, 2020 to Dec. 31, 2020, the borrower has not received a loan duplicative of the purpose and amounts applied for here (Note: There is an opportunity to fold emergency loans made between Jan. 31, 2020 and the date this loan program becomes available into a new loan)
If you are an independent contractor, sole proprietor, or self-employed individual, lenders will also be looking for certain documents (final requirements will be announced by the government) such as payroll tax filings, Forms 1099-MISC, and income and expenses from the sole proprietorship.
3) How much can I BORROW?
Loans can be up to 2.5 x the borrower’s average monthly payroll costs, not to exceed $10 million.
How do I calculate my average monthly PAYROLL COSTS??
For Employers: The sum of payments of any compensation with respect to employees that is a:
- salary, wage, commission, or similar compensation;
- payment of cash tip or equivalent;
- payment for vacation, parental, family, medical, or sick leave
- allowance for dismissal or separation
- payment required for the provisions of group health care benefits, including insurance premiums
- payment of any retirement benefit
- payment of state or local tax assessed on the compensation of the employee
- Compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the period February 15, to June 30, 2020
- Payroll taxes, railroad retirement taxes, and income taxes
- Any compensation of an employee whose principal place of residence is outside of the United States
- Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116– 5 127); or qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act
4) Will this loan be FORGIVEN?
Borrowers are eligible to have their loans forgiven.
A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 8-week period beginning on the date of the origination of the loan:
- Payroll costs (using the same definition of payroll costs used to determine loan eligibility)
- Interest on the mortgage obligation incurred in the ordinary course of business
- Rent on a leasing agreement
- Payments on utilities (electricity, gas, water, transportation, telephone, or internet)
- For borrowers with tipped employees, additional wages paid to those employees
The loan forgiveness cannot exceed the principal.
How could the forgiveness be reduced?
The amount of loan forgiveness calculated above is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees. Specifically:
- Reduction based on reduction of number of employees
- Reduction based on reduction in salaries
What if I bring back employees or restore wages?
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.
A SPECIALIST IS HERE TO HELP
Monday-Friday 10:00 am - 5:00 pm
|Who is the lender?|
|The SBA||A Bank that is already an SBA lender or any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program.|
|When can I apply?|
|Who can apply?|
|What are the affiliation rules?|
|Affiliation rules become important when SBA is deciding whether a business’s affiliations preclude them from being considered “small.” Generally, affiliation exists when one business controls or has the power to control another or when a third party (or parties) controls or has the power to control both businesses.||Affiliation rules become important when SBA is deciding whether a business’s affiliations preclude them from being considered “small.” Generally, affiliation exists when one business controls or has the power to control another or when a third party (or parties) controls or has the power to control both businesses|
|What is the maximum amount of the loan?|
|The maximum loan size is $2 million. Applicants who apply for this loan may request an advance of up to $10,000 from the SBA. The advance will be distributed within 3 days. Applicants are not required to repay this advance.||
The maximum loan size is $10 million. The calculation is as follows:
|What is the annual interest rate?|
|3.75% for businesses, 2.75% for non-profits||1%|
|What is the term of the loan?|
|Up to 30 years||2 years|
|When is the first loan payment due?|
|One year after the loan origination date (interest is accrued during the deferment)||At least six months after the loan origination date (interest is accrued during the deferment)|
|What can we use the loan for?|
|Financial obligations and operating expenses that could have been met had the disaster not occurred||
Permitted costs which are:
|Is there a loan forgiveness program?|
|No||Yes – calculated as the amount spent on Permitted costs by the borrower during an 8-week period (the “Covered Period”) after the origination date of the loan|
|What reduces the forgiveness?|
|N/A||The amount forgiven is reduced based on failure to maintain the average number of full-time equivalent employees versus the period from either February 15, 2019, through June 30, 2019, or January 1, 2020, through February 29, 2020, as selected by the borrower. The amount forgiven is also reduced to the extent that compensation for any individual making less than $100,000 per year is reduced by more than 25% measured against the most recent full quarter. Reductions in the number of employees or compensation occurring between February 15, 2020, and 30 days after enactment of the CARES Act will generally be ignored to the extent that reductions are reversed by June 30, 2020. Forgiven amounts will not constitute cancellation of indebtedness income for federal tax purposes.|
|How do I get forgiveness?|
You must apply through your lender for forgiveness on your loan. In this application, you must include:
|What collateral is required?|
|The SBA will place a UCC lien against the assets of the business||No collateral is required from either the business or its owners|
|Is a personal guarantee required?|
|Yes, for loans > $200,000, owners of > 20% of the business, managing members of LLCs, managing partners of LPs. However, no liens will be taken against real estate owned by the guarantor||No.|
|Do I need to have filed my 2019 Taxes to apply?|
|No, 2019 Taxes do not have to be filed prior to applying for the loan. However, businesses will be asked to submit IRS form 4506T, which provides the SBA with access to historical tax returns||Will depend on the lender|
|(1) Loan proceeds used for the eligible expenditures listed above for an 8-week period beginning on the date the loan is received are eligible for 100% forgiveness. Amounts eligible for forgiveness will be proportionately reduced to the extent there is a year-over-year reduction in retained workers, although qualifying small businesses will be allowed to rehire previously terminated personnel without penalty.|
|(2) Eligibility under Paycheck Protection Program have exceptions for accommodation and food service industry, affiliated groups and certain businesses in SBA-designated industries. Eligibility under Economic Injury Disaster Loans certain SBA designated business industries may also be eligible despite headcount in excess of 500 employees.|
|(3) Payroll Costs up to $100,000 in annual compensation (pro-rated from February 15, 2020 - June 30, 2020) include: Salary, wages, commissions or similar compensation, including cash tips; Vacation, parental leave, family leave medical or sick leave; Severance payments; Group health care payments; Retirement benefits; and State or local tax assessed on the compensation of employees|
|(4) Special rules exist for businesses that were not in existence from February 15, 2019 – June 30, 2019.|
|(5) There would be no borrower and/or lender fees and collateral and/or personal guarantees would not be necessary.|
|(6) Although applicants will not necessarily be rejected strictly for lack of collateral.|
|(7) Potentially for 6 to 12 months payments can be deferred|