Category: EIDL/PPP Programs

A few changes and clarifications have emerged to the Paycheck Protection Program, or PPP, since we penned our blog post. Here’s a link to an up to date article from Forbes.

A few key points:

• To be clear: sole proprietorships, independent contractors, gig-economy workers and the self-employed are eligible.
• Payroll costs for the independent contractor or sole proprietorship includes wages, commission, income or net earnings.
• Collateral and personal guarantees are not required.
• Interest rate is capped at 1% per annum (Yay!).
• Maturity is two years (Boo! Call your legislators).
• Not really a change, but our fears have been confirmed: dealing lending banks under this program has proven confusing and difficult in the early days to many. Some of this is down to how quick this program was rolled out and resulting confusion on procedures and policies, but some of it appears to be down to the traditional motivations of lenders to be conservative. Approach them with your records in order, shop around, and be relentless!

Let us know if you have any questions.  Please keep in mind that clarifications are appearing quickly for both the EIDL and PPP programs and there is talk of another round of legislative aid – we’re monitoring developments and will post updates as we see them.

Let’s cut to the chase and start parsing through the somewhat confusing bundle of aid offered to small business and non-profits as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (by the way, a good start to simplifying these things would be to stop working so hard for a soundbite friendly acronym).

On top of the already existing Economic Injury Disaster Loans (EIDL) we spoke of before, you now have other options and a modification of the EIDL program to consider. Below are highlights of these programs; a good place to look for further detail is here: US Senate Comittee of Small Business & Entrepreneurship Guide to the CARES Act .

The Paycheck Protection Program (PPP)

• Purpose: Provide cash-flow assistance though fully federally guaranteed loans to employers who maintain their payroll through the crisis.
• Who’s eligible? Small businesses and nonprofits in operation as of 15 February 2020 with fewer than 500 employees.
• Maximum size:
  • 250% of average monthly payroll costs for the 1-year period prior to the origination of the loan. (There is an exception for seasonal employers, but this must be agreed with the lender.)
  • If you have taken an EIDL out in the period of 15 February to 30 June 2020, you can refinance that loan into a PPP and add on the above payroll amounts
• Payroll is defined broadly to include: compensation, vacation, sick leave, health care benefits, retirement benefits and state or local payroll taxes. There is a limit at $100,000 per person on compensation. Other limits apply.
• What are allowable uses of the loan? Payroll, continuation of heath and leave benefits, mortgage interest, rent, utilities, interest on pre-existing debt.
• Terms? Maximum maturity of 10 years, 4% interest rate cap, no loan or prepayment fees. Application fees to be capped.
• Forgiveness?(!): You will be able to apply for forgiveness through your lender and will need to document the maintenance of employees and pay rates through June 2020 and other uses of the proceeds.
  • Forgiveness limit is equal to the sum of payroll costs + mortgage interest + rent + utility cost for the 8 weeks following the loan is granted.
• PPP and other SBA loans: You can apply for PPP loans and other SBA loans such as the EIDL, but the PPP loan and the EIDL can NOT be for the same purpose. For example, you can not use the EIDL to cover payroll for the same 8 weeks as the PPP covers.
• SPECIAL NOTE: You must apply for the PPP through an approved SBA lender. All current SBA 7(a) lenders are eligible and others may be appointed. The EIDL is granted and funded directly by the SBA.

Emergency Economic Injury Grants

• The CARES Act modified the EIDL process to provide for a emergency advance of up to $10,000 within 3-days of application for an EIDL.
• You MUST first apply for the EIDL and THEN request the advance. The advance does not need to be repaid under any circumstance even if your EIDL is denied[1].
• Use: The grant may be used to maintain payroll, pay for sick leave, and meet obligations necessary to stay in business such as debt, rent, mortgages, and increased production costs.
• Eligibility: Same eligibility as EIDL and have been in operation since 31 January 2020

Modification to the EIDL: The credit elsewhere test is waived, so even if you have other sources of borrowing, you may still qualify for the EIDL.

Small Business Debt Relief Program: This program will provide immediate relief to small businesses with non-disaster SBA loans, in particular 7(a), 504, and microloans. Under it, SBA will cover all loan payments on these SBA loans, including principal, interest, and fees, for six months. This relief will also be available to new borrowers who take out loans within six months of the Act becoming law.

Assistance: Things have moved fast and you may need assistance to navigate these matters. A good place to start is here: https://www.sba.gov/local-assistance/find/

Need help getting your finances organized to apply for funding?  Send us a message and we’ll be in touch!

 

[1] https://www.schatz.senate.gov/coronavirus/small-businesses/sba-economic-injury-disaster-loan-and-emergency-grant

My revenues are lower now due to measures to prevent the spread of COVID-19.  Is there any kind of financial assistance to help my business stay afloat? 

All fifty states have been declared disaster areas in light of the COVID-19 pandemic. This declaration allows the United States Small Business Administration (SBA) to offer funding through its Economic Injury Disaster Loan program (EIDL) to small businesses, small agricultural cooperatives, and most private nonprofit organizations if those entities have suffered substantial economic injury. Substantial economic injury is defined as the inability of a business to meet its obligations or pay ordinary and necessary operating expenses due to the disaster; the SBA loan is meant to provide working capital to allow the business to survive until normal times return.

Unlike other SBA programs, the EIDL funds are lent directly by the SBA rather than through a funding partner like a local bank; in theory, this should speed the application process and disbursements. The maximum loan amount is US$2 million with the amount determined on a case-by-case basis according to the economic injury your business has suffered and your ability to repay.

Key things to know about the EIDL:

• These are loans, not grants. You’ll have to pay it back!
• Your business is only eligible if there is no access to other credit.
• The loans have a maximum maturity of 30-years, though the actual maturity and repayment plan will be determined on a case-base basis according to ability to repay.
• The borrower must have a credit history acceptable to the SBA.
• The SBA requires collateral for the EIDL program for loans over $25,000 and will take real estate when it can. It may seek collateral from a business’s principals.
• The maximum annual interest rate for small businesses is 3.75% and 2.75% for nonprofits.
• You may be required to take out credit insurance for the SBA.

The US Congress is considering further economic support, but the form at the time of this writing is uncertain. It may make sense to apply for an EIDL from the SBA now as applications will take time. You can always decide to decline it if better options become available.

Here’s a couple of links for learning more:

SBA to Provide Disaster Assistance Loans for Small Businesses Impacted by Coronavirus (COVID-19)

Coronavirus (COVID-19): Small Business Guidance & Loan Resources

As a last thought, in tough times, cash is king. Maintaining liquidity is always a sound strategy. If you have excess cash available to you or can find funding at decent terms (like the EIDL) and must meet obligations (i.e., payments to suppliers and landlords) it may make sense to negotiate for discounts or better future terms in exchange for immediate payment. If you don’t ask, you don’t get.

Are you overwhelmed with getting your finances together for these applications?  Send us a message to find out if Sunstone Bookkeeping can help you get started!