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Q&A For CARES Act Emergency Loans – Apply Now

The US Department of The Treasury issued late today a first round of guidance for the Paycheck Protection Program.  You can begin to apply as early as April 3rd.    See information HERE.   **IMPORTANT NOTE:  Please be cautious of potential scammers who may be reaching out to offer you assistance in applying for loans.

Following is helpful information we have compiled to-date on CARES Act Emergency Loans 

Paycheck Protection Program (PPP)

Please keep in mind that these are general guidelines and subject to final rule-making and eligibility requirements from the SBA.

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. All loan terms will be the same for everyone.

The Paycheck Protection Program (PPP) will be administered through banks.  Contact your bank now as they are giving first priority to existing customers.

When Can I Apply?

  • Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
  • Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
  • Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.

Where Can I apply?

You can apply through any existing SBA 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 available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating. Visit www.sba.gov for a list of SBA lenders.

Who is Eligible?

  • Business Concern
  • 501(c) (3) Non-Profit Organization
  • 501 (c) (19) Veterans Organization
  • Tribal Business Concern
  • To qualify, companies and nonprofits must have fewer than 500 total employees, including all affiliates, subsidiaries and companies under common ownership. Certain exceptions apply for small businesses in the food service sector, franchises and SBIC-financed businesses.

What do I need to apply?

You will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender
that is available to process your application by June 30, 2020. Click HERE for the application.  Lender documentation requirements may vary.  See suggested list below.

What other documents will I need to include in my application?

You will need to provide your lender with payroll documentation.

Do I need to first look for other funds before applying to this program?

No. The US Department of The Treasury is waiving the usual SBA requirement that you try to obtain some or all of the loan funds from other sources (i.e., we are waiving the Credit Elsewhere requirement).

How long will this program last?

Although the program is open until June 30, 2020, you are encouraged to apply as quickly as you can because there is a funding cap and lenders need
time to process your loan.

How many loans can I take out under this program?

Only one.

What can I use these loans for? 

  • Payroll costs, including benefits;
  • Interest on mortgage obligations, incurred before February 15, 2020;
  • Rent, under lease agreements in force before February 15, 2020; and
  • Utilities, for which service began before February 15, 2020.

How much of my loan will be forgiven?

  • You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
  • You will also owe money if you do not maintain your staff and payroll.
    • Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
    • Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
    • Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

Important Items to Note

  • You can apply for both an Economic Injury Disaster Loan (through the SBA) and a Payroll Protection Program Loan, but there may be no duplication in the use of funds.
  • The maximum loan amount is 2.5 times your monthly payroll, up to $10 million, with an interest rate of 1% and a 2 year term.  See details at the SBA website
  • These will be unsecured loans that do not require personal guarantees.
  • Loan payments can be deferred for 6 months, but interest will continue to accrue during this period.
  • No prepayment penalty.
  • No collateral required.

What You Can Do Now

  • CONTACT YOUR BANK FOR GUIDANCE.
  • View the Paycheck Protection Program Application Form. Click HERE.
  • Identify and compile records for those expenses that can be covered by the program.
  • If you’ve already had to reduce your workforce due to COVID-19, determine if you would like to rehire them. They will be covered.
  • Collect the documentation you typically need for a loan application: Financial statements – Interim 2020 income statement and balance sheet and full year 2019 income statement and balance sheet.  Your bank will communicate with you the documents they require.
    • Tax Returns – last three (3) years of federal returns for business
    • 2019 payroll information
    • Current organizational documents – Bylaws, articles and operating agreements
    • General liability insurance information
    • Current building lease & any amendments

HOW THE PAYCHECK PROTECTION PROGRAM WORKS

For a clear, easy to understand overview of how the Paycheck Protection Program works, see the US Chamber of Commerce’s informative Q&A guide.  VIEW HERE. 

Watch for updates from your banker. 

THE SBA Economic Injury Disaster Loan (EIDL)

How to Apply:

The SBA Economic Injury Disaster Loans will be administered through the SBA.  Do not contact your bank regarding these loans.  You may apply EIDL Online Application Website  https://disasterloan.sba.gov/ela 

Who Is Eligible:

CARES Act expands EIDL eligibility to small businesses, cooperatives, ESOPs with fewer than 500 employees, passive properties, tribal businesses, all non-profit organizations, including 501(c)(6)s, and to individuals operating as sole proprietors or independent contractors.

Highlights:

  • Every State Should Now Be On The Approved EIDL List
  • EIDL Loans May Not Be Forgiven
  • Borrowers can receive a $10,000 emergency grant cash advance that can be forgiven if spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments or repaying obligations that cannot be met due to revenue losses.
  • Can a business get an EIDL and a Paycheck Protection Program loan?  Yes, small businesses can get both an EIDL and a Paycheck Protection Program loan as long as they don’t pay for the same expenses.
  • EIDL Applicants Must:
    • Apply directly with the SBA and not a bank to get these loans
    • Have a FICO score greater than 570 to qualify
    • Have been in business for more than one year.
    • Keep supporting documents detailing how all the loan proceeds were used for three years.
    • All available collateral, both business and personal, will have to be pledged until a 1:1 collateral coverage is obtained. The loan will still be made if a 1:1 collateral coverage is not achieved.
    • All owners with a 20% or greater ownership interest in the entity will be required to guarantee the loan

Loan Terms:

  • Applicants can either get an EIDL or a new enhanced SBA 7a loan with the proposed program changes, but the SBA might not let them get both.
  • 30 year terms and amortization is being advised
  • The loan amount guidance is equal to 6 months of GPM
  • Loans in this program do not count towards a borrower’s available SBA guaranteed dollar limits
  • 3.75% interest rate on For Profit business loans and 2.75% interest rates on Non-For Profit loans
  • Monthly payments will begin 12 months after the loan is funded, interest will accrue

Estimated Timeline:

  • Historically EIDL loans took 21 days for credit decisions to be made by the SBA.  The SBA then mails the loan docs to the applicant after approval.
  • Applicants have up to 60 days to return signed loan docs to the SBA.  The SBA will process and disburse funds into the applicants’ operating account in 3 to 5 days.
  • These are historical timelines when this program was used for much smaller areas of the country and not the country as a whole.  Anticipate the timeline will be longer.
  • Loans up to $500,000 might not require much financial documentation
  • Loan amounts greater than $500,000 will most likely be slower and require more documentation
  • Tax Transcripts will be ordered, but the SBA will not wait to get them back before funding

We Are Here to Help

We will be issuing more detailed information on the CARES Act soon including small business assistance and available business loans and disaster relief.  Also, look for upcoming COVID-19 related webinars.

Please visit the Warady & Davis LLP COVID-19 Resource Center for a wealth of information on stimulus assistance, new legislation and much more.  This information is updated daily.  This is a rapidly evolving situation so please do not hesitate to reach out to us with any questions or concerns at 847-267-9600.

 

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