On Friday, March 27, 2020, Congress passed, and President Trump signed, the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, to provide financial relief for individuals and businesses. The following includes high-level information about the stimulus funds available to small businesses and some non-profits.
Because this situation is still fluid and a lot of information is being rolled out very quickly, we recommend that you contact your banker and/or your tax professional as soon as possible if you want to apply for either a Paycheck Protection Loan or an Economic Injury Disaster Loan from an SBA-approved lender.
- Will C. Jones IV firstname.lastname@example.org
- Gregory M. Klipp email@example.com
- Jenny Roan Forgey firstname.lastname@example.org
How Paycheck Protection Loans, authorized by the CARES Act, are different from typical SBA loans:
- No requirement for a personal guarantee or collateral;
- No requirement that an entity exhaust other loan options before applying for these loans.
More Good News
- A good faith attestation is all that is required from a borrower stating that they are experiencing or will experience financial difficulties because of the coronavirus;
- 7(a) preferred lenders are automatically qualified to begin providing these loans;
- The Treasury Department, in conjunction with the SBA, has flexibility to give more lenders authority to provide these loans.
Who is Eligible for a Paycheck Protection Loan
- For-profit businesses with fewer than 500 employees (if your business has more than 500 employees, you might still qualify under an exception);
- 501(c)(3) non-profits with fewer than 500 employees;
- Sole proprietors and independent contractors;
- Businesses in the food services or accommodation industry with fewer than 500 employees per location (the count of employees is based on a per-premise, not cumulative, headcount).
Terms of a Paycheck Protection Loan
- Set by Congress, these loans cannot have an interest percentage rate that is higher than 4.00%;
- Lenders must provide complete payment deferment for not less than six months and not more than 12 months;
- No personal guarantee;
- No collateral;
- No prepayment penalty;
- All fees are waived during the period beginning on February 15, 2020 through June 30, 2020;
- The loan amount will be based on the average monthly payroll cost for 2019 x 2.5 plus the outstanding amount of any SBA Economic Injury Disaster Loan.
Payroll Costs May Include
- Salary, wage, commission or similar compensation up to $100,000 per person;
- Payment of cash tips or the equivalent;
- Payment for vacation, parental, family, medical or sick leave;
- Allowance for dismissal or separation;
- Payment of health care benefits;
- Payment of retirement benefits; and
- Payment of payroll taxes.
- The maximum loan amount per borrower is $10 million.
Underwriting Standards For the Stimulus/SBA Loans
- Lenders must verify that the entity is a small business in effect before February 15, 2020;
- More documentation will be required for sole proprietors and independent contractors to verify that they have regular income.
Forgiveness Portions of CARES Act SBA Loans
- The SBA will forgive a portion of a Paycheck Protection Loan in the following manner:
- Income and Expenses for the 8-week period after the origination of a loan will be added together, including:
- Payroll as defined above;
- Mortgage Debt.
- The sum of those expenses may be forgiven by the SBA dollar for dollar up to the maximum amount that the entity borrowed.
- Caveat: did the small business keep the employees it had when the loan orignated?
- If the business reduces its headcount (let employees go) during that 8-week period, its loan forgiveness will be reduced; or
- If the business cuts wages by more than 25%, the dollar value of its loan forgiveness will be reduced.
- But, if the business lets go of an employee before the loan origination period began and are able to bring them back, the business will get more loan forgiveness (your loan forgiveness will be increased by the amount of payroll increase).
- Payroll taxes paid by the employer may be deferred:
- 50% for up to one year;
- The other 50% for up to two years.
- $4 trillion in back lending will be provided to the Fed for loan guarantees that will help lenders provide liquidity to employers of all sizes.
EDIL – Economic Injury Disaster Loans Via the SBA
- These are different from the Paycheck Protection/CARES Act loans;
- Small businesses can request an immediate advance of up to $10,000 that does not have to be repaid to the extent that it is used for payroll when they apply for an EIDL, even if they are denied for the EIDL loan;
- The SBA has been directed by Congress to disburse the cash advance within 3 business days of receiving a loan application and request for an advance.
- Small businesses cannot take out both an EIDL and Paycheck Protection Loan for the same expenditure.
What Should You Do Immediately
- Begin pulling together your payroll information from 2019.
- Calculate your average monthly payroll according to the limitations and inclusions outlined above.
- Speak with your tax professional to determine how to maximize the tax benefits.
- Remember that most of this money will be debt. If you can, cut expenses before taking on more debt.
- The SBA is in the process of promulgating the application forms. We suggest getting in touch with your banker as soon as possible so that you will be first-in-line for the application when it becomes available.
For more information, visit this link at the Greater Austin Chamber of Commerce: