April 2, 2020
On Friday, March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act provides significant federal funding and expansions to loan programs already offered by the Small Business Administration (the “SBA”) to account for the significant economic damage caused to small businesses by the COVID-19 pandemic. In particular, the CARES Act provides $349 billion dollars to the Paycheck Protection Program, an expansion of the Section 7(a) loan program of the Small Business Act, and an additional $10 billion to the Economic Injury Disaster Loan (EIDL) Program offered by the Small Business Act in Section 7(b). Below is a brief overview of both programs.
The Paycheck Protection Program may be right for you if…
- You are looking to obtain capital to cover the cost of retaining employees.
- You already laid off employees and are looking to re-hire them. Before rehiring the employees or applying for the loan, the timing of the re-hire is important to consider for both tax and cash-flow purposes.
If you are looking for a quick infusion of a smaller amount of cash now…
- The Emergency Economic Injury Grant under the Economic Injury Disaster Loan (EIDL) Program may be right for you.
Before you decide to apply for the EIDL….
- You need to fully understand the impact of later applying for the Paycheck Protection Program loan, and whether you can refinance the prior EIDL principal.
Are you simply looking to ease your fears about keeping up with payments on your current or potential SBA loan?
- The Small Business Debt Relief Program may help, which provides immediate relief to borrowers with existing SBA 7(a) loans, 504 loans and microloans.
The Paycheck Protection Program
Begin Preparing / Finalizing 2019 Financials and YTD 2020. Under the Paycheck Protection Program, all loans are eligible to be partially forgiven if the funds are utilized for permissible uses. The SBA will compare your businesses’ payroll costs over the eight-week period commencing upon receipt of the funds to your business’ payroll costs from February 15, 2019 – June 30, 2019. We recommend that you also prepare monthly Profit and Loss statements for 2019 and YTD 2020.
The Paycheck Protection Program authorizes approved businesses to receive the lesser of: (i) 2.5x the cost of the businesses’ average monthly payroll over the preceding 12 months; or (ii) $10,000,000. Loan proceeds may be used for payroll costs, healthcare costs, interest on mortgage obligations, rent for a lease in place before February 15, 2020, utilities for which service began before February 15, 2020, and other debt obligations in place prior to February 15, 2020. A loan administered under this program shall not have an interest rate of more than 4%, the loan duration shall not exceed more than ten years, and payments on the loan may be deferred for at least six months, but no longer than one year.
Businesses Eligible for the Paycheck Protection Program
Small businesses, non-profit organizations (outside of organizations that receive Medicare expenditures), veterans organizations, and tribal business that employ 500 or fewer people, as well as self-employed individuals automatically qualify for the Paycheck Protection Program. Businesses that employ more than 500 employees may be eligible if the business either: (i) has fewer than the number of employees or has less revenue than is specified in the NAICS table for the business’ specific industry (note: the link to the SBA NAICS table is here); or (ii) falls within the NAICS code 72 classification (primarily food, beverage, and hotel enterprises) that employ 500 or fewer people at each physical location of the business.
Economic Injury Disaster Loan (EIDL) Program
The Economic Injury Disaster Loan (EIDL) Program allows approved businesses to receive a loan of up to $2,000,000 with collateral and up to $25,000 unsecured. This loan can be used for sick leave for employees unable to work due to COVID-19 as well as for payroll costs, increased material costs due to interrupted supply chains, rent or mortgage payments, repaying obligations that cannot be met due to revenue losses, and obligations that could have been paid had the disaster not occurred. The loan shall not have an interest rate of more than 3.75%, a term of less than 30 years, and no longer requires a personal guaranty on advances and loans of $200,000 or less. The CARES Act also created a new provision within the EIDL Program that allows applicants who need immediate funds the ability to request an emergency advance up to $10,000 within three days after the SBA receives the application. If the application is subsequently denied, the borrower is not required to repay the $10,000 advance.
Businesses Eligible for the EIDL Program
Similar to the Paycheck Protection Program, small businesses, non-profit organizations, veterans organizations, and tribal business that employ 500 or fewer people, as well as self-employed individuals, automatically qualify for the EIDL Program, along with ESOPs and cooperatives (including sole-proprietors and independent contractors).
Economic Injury Disaster Loan Program
- Apply Online. Unlike the Paycheck Protection Program, the SBA directly oversees the EIDL. You can apply for an Economic Injury Disaster Loan through the SBA website. Click here to access the online application.
- Assemble Financial Information. The online application will ask you to provide the following:
- Completed application (SBA Form 5)
- IRS Form 4506T for applicant, principals and affiliates
- Complete copies of the most recent Federal Income Tax Return
- SBA Form 2202 – Schedule of Liabilities
- Personal Financial Statement (SBA Form 413)
For certain applicants, the SBA may also ask for:
- Personal tax returns for all principals
- Year-End Financial Statements
- Current year-to-date Profit & Loss Statement
- SBA Form 1368 (Monthly Sales Figures
Walter | Haverfield is Here to Help
We are currently facing an economic crisis that is virtually unparalleled in American history. The attorneys at Walter | Haverfield know that many businesses have questions concerning these programs. We are ready to provide you with any legal assistance you may need concerning your business’ eligibility for these programs and the operations of your business. We can also provide you with corporate documents that we have on file for your business, and assist you with any updates to your corporate governing documents. Walter | Haverfield is here to help you and your business successfully navigate through these difficult times.