The Coronavirus (COVID-19) pandemic has had an adverse economic impact on the national economy, including productivity losses, supply chain disruptions, major labor dislocation, and significant financial pressure on both businesses and households.
Small businesses are viewed as a means to stimulate economic activity and create jobs. Several types of programs have come out in the recent weeks to support small businesses, including direct disaster loan programs for businesses, to assist their recovery and to access capital.
The U.S. Small Business Administration (SBA) is offering low-interest federal disaster loans to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19). Here is some important information to consider:
- Businesses that are eligible to apply: Small business (defined as having fewer than 500 full-time and part-time employees), individuals who operate a sole proprietorship or as an independent contractor and eligible self-employed individuals, most private non-profit organizations that are physically located in a declared county and suffered working capital losses due to COVID-19.
- Approval Requirements: The applicants must have a credit history acceptable to SBA and SBA must determine that the applicant businesses are capable of repaying the SBA loan.
- Loan size and interest: Eligible entities may qualify for loans up to $2 million based on their size, type of business, and its financial resources. The interest rates are 3.75% for small business and 2.75% for nonprofit organizations with terms up to 30 years. These working capital loans may be used to pay fixed debts, payroll, accounts payable, and other bills that could have been paid had the disaster not occurred.
- Collateral: Economic Injury Disaster Loans over $25,000 require collateral. Business assets and potential personal assets of 20%+ owners of the business. No real estate collateral will be required.
- Personal Guarantees: Yes, on loan amounts $200,000 and above. All 20% plus owners must provide personal guarantees.
- Emergency Economic Injury Grants: grants provide an emergency advance of up to $10,000. To access the advance, you first apply for an EIDL and then request the advance. The advance does not need to be repaid under any circumstance.
SBA’s Economic Injury Disaster Loan (EIDLs) funds come directly from the U.S. Treasury. Applicants can apply directly to SBA’s Disaster Assistance Program at https://covid19relief.sba.gov/#/ as soon as possible. There’s no cost to apply and no obligation to take the loan if offered.
More information can be found at https://www.sba.gov/funding-programs/disaster-assistance
Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) Key Payroll Forgiveness Provisions
On March 25, 2020, the Senate passed a COVID-19 relief bill known as the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Here are some key features related to small business:
- Eligible business and entities: The loans would be available to small businesses (defined as having fewer than 500 full-time and part-time employees) and individuals who operate as sole proprietorships or independent contractors. To be eligible, the borrower must have been in operation as of February 15, 2020.
- Loan size: the loan size will be calculated in different ways:
- If you were in business February 15, 2019 – June 30, 2019: Your max loan is equal to 250 percent of your average monthly payroll costs during that time period. If your business employs seasonal workers, you can opt to choose March 1, 2019 as your time period start date.
- If you were not in business between February 15, 2019 – June 30, 2019: Your max loan is equal to 250 percent of your average monthly payroll costs between January 1, 2020 and February 29, 2020.
- If you took out an Economic Injury Disaster Loan (EIDL) between February 15, 2020 and June 30, 2020 and you want to refinance that loan into a PPP loan, you would add the outstanding loan amount to the payroll sum.
- Percentage of Guaranty for Lender: 100% (must be approved prior to 06/30/20).
- Loan term and interest: For any amounts not forgiven, the maximum term is up to 10 years, the maximum interest rate is 4% fixed.
- Allowable uses of loan proceeds: payroll costs, rent, utilities, interest on debts, etc.
- Forgiveness: Forgiveness on a covered loan is equal to the sum of the payroll costs incurred during the covered 8 weeks period compared to the previous year or time period, proportionate to maintaining employees and wages (excluding compensation over $100,000).
- Payroll costs plus any payment of interest on any covered mortgage obligation (not including any prepayment or payment of principal on a covered mortgage obligation) plus any payment on any covered rent obligation plus and any covered utility payment.
- How to apply: All current SBA 7(a) lenders are eligible lenders.
More information can be found at https://www.sbc.senate.gov/public/_cache/files/9/7/97ac840c-28b7-4e49-b872-d30a995d8dae/F2CF1DD78E6D6C8C8C3BF58C6D1DDB2B.small-business-owner-s-guide-to-the-cares-act-final-.pdf
If you have any questions regarding the new COVID-19 Stimulus Assistance and how they impact you and your business, or require any other assistance, please call or email one of our knowledgeable team members.