Loans for Small Business Owners through CARES Act

The Coronavirus Aid, Relief, and Economic Security (CARES) Act which was recently passed by Congress is intended to assist business owners with specific needs they have right now. Although the first $350 Billion for these programs has been drained, it appears congress is negotiating to contribute more to this lifeline for small businesses. We know that few applicants have received money at this point. If you have an application confirmation number, you should be in line for review, which is key. Please continue reading to learn more about how you may be able to apply for assistance as a small business owner

The Paycheck Protection Program (PPP) would provide 100% federally guaranteed loans to small businesses. These loans, known as SBA 7(a) loans, may potentially be forgiven if borrowers maintain their payrolls during this emergency.

We are still clarifying the details, but here’s what we have found so far:

Lenders will be asking for a good faith certification that:

1. The uncertainty of current economic conditions makes the loan request necessary to support ongoing operations.

2. The borrower will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments.

3. The borrower does not have an application pending for a loan duplicative of the purpose and amounts applied for here.

4. 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).

  • The total amount of the loan will be calculated based on 2.5x the business’s average monthly payroll (with a maximum consideration of $100,000 per employee).
  • Deferred payments for the first 6 months, and a total 2-year term.
  • 0.5% fixed annual percentage rate.
  • Loan forgiveness is equal to the amount spent on eligible expenses during the 8-week period following the origination of the loan. These eligible expenses include payroll costs, interest (not principal) on mortgage obligations, rent, and utility payments.

Although some details may be subject to change as more information is released, we believe this can be a useful tool to help keep small businesses on their feet. We expect there to be a high volume of applications being submitted to lenders as soon as these loans become available so it would be a good idea to gather your financial statements as soon as possible if this is a tool that interests you. A preliminary checklist might include:

  • Annual IRS Form 944 or the last four IRS 941 Forms
  • 1099 payroll expense for the last 12 months (IRS Form 1096)
  • 2019 Business Tax Return, or 2019 P&L and Balance Sheet (if 2019 returns not filed)
  • Payroll Report with columns totaled from 1/1/2019 to 12/31/2019 and

1/1/2020 to 2/29/2020. The report should include:

a. Identification of Full-Time vs. Part-Time Employees

b. Gross Wages for each employee including officers if paid W-2 wages

c. State or Local Tax assessed on the compensation of the employee

d. Group Health Care Benefits (including Insurance Premiums)

paid by the company

e. Retirement Benefits paid by the company

  • Corporate Documents including Articles of Incorporation/Organization

and Bylaws or Operating Agreement

  • A list of the total number of employees who earned in excess of $100,000 and the total compensation paid to those employees and 1099 workers.
  • Paycheck Protection Program Application Form 2483 – completed by ALL

INDIVIDUALS WITH 20% OR MORE OWNERSHIP (separate form per owner)

The Economic Injury Disaster Loan (EIDL) is a non-forgivable loan with a maximum loan amount of $2 million. The specific amount for a business will be determined based on actual economic injury, and the entity’s financial needs. Loan terms are 3.75% for up to 30 years (non-profit rate is 2.75%), and you can defer payments for up to 12 months. Examples of acceptable uses for an EIDL include:

  • Paying fixed debts
  • Payroll
  • Accounts payable
  • Employee sick leave
  • Other bills that cannot be paid due to the disaster’s impact.
  • EIDLs CANNOT be used to refinance debts incurred prior to the disaster event; make payments on other loans owned by another federal agency or SBA; pay tax penalties or non-tax criminal/civil fines; pay dividends or disbursements; repair physical damage.

Emergency EIDL Advance of $10,000

EIDLs have an emergency advance of $10,000 available. This loan advance acts like a grant because it is 100% forgivable and does not have to be paid back. While you must apply for an EIDL (Economic Injury Disaster Loan) to access these funds, you do NOT have to pay it back if your loan application is declined, and you do NOT have to move forward with a loan beyond the advance if your loan application is accepted.

Attached are a few resources that are publicly available for you to reference, as well as the PPP Application Form 2483. Consider leveraging an existing relationship with a lender that is familiar to you in order to expedite this process most efficiently.  Although these loans may not be relevant to you specifically, they could be beneficial for someone you know. Please feel free to contact us if you would like further information.

Resources

Search for the lenders:  https://www.sba.gov/paycheckprotection/find

Small Business Owner’s Guide to the CARES Act:

https://portal.ct.gov/-/media/Coronavirus/20200327-Small-Business-Owners-Guide-to-the-CARES-Act.pdf

SBA Form 2483:

https://www.sba.gov/sites/default/files/2020-03/Borrower%20Paycheck%20Protection%20Program%20Application_0.pdf

EIDL Online Application:

https://covid19relief.sba.gov/#/

CARES Act – Small Business Owners Guide:

https://portal.ct.gov/-/media/Coronavirus/20200327-Small-Business-Owners-Guide-to-the-CARES-Act.pdf

Sources

Source: U.S. Chamber of Commerce – Coronavirus Emergency Loans Small Business Guide and Checklist

Source: U.S. Senate Committee on Small Business & Entrepreneurship – The small Business Owner’s guide to the CARES Act