UPDATED: 3 Keys to Understanding, SBA, EIDL, and PPP Stimulus

For-Profit Businesses with under 500 team members

CARES Act reduces concern about having to furlough employees.
SBA advance loan application is simplified, with no forms to submit.
Payroll Protection Program loan application process launching this week

Key 1 – SBA Economic Injury Disaster Loan (EIDL Advance Loan/Grant)

Should I Apply for the SBA up to $10,000 Loan Grant?

YES, IF THESE APPLY:

• I can attest that Covid-19 HAS had at least a $10,000 impact on my business
• I am sole proprietor, contractor, S corp (including single owner) C corp, or partnership.
• I have under 500 employees
• An affiliated company is not also applying – see Note 1
• I need immediate aid and cannot wait for a Payroll Protection Program (PPP) loan or do not plan to apply for a PPP loan.
• I am not concerned about the PPP program running out of funding.
• I am not a farming enterprise.

Will I Get the Full $10,000?

The SBA determines the amount of the loan based on data provided. The formula has not been released.

Can I apply for this $10,000 and a PPP Loan?

If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan.

If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.

Can I apply if I have furloughed employees?

Yes!

Do I need to Submit Documentation?

• No, you fill out an online application.
• Business info including EIN will be needed.
• Ownership info will be needed.
• Have your sales amount from Feb 2019 through Jan 2020 ready.
• Have your cost of sales (if any) from Feb 2019 through Jan 2020 ready.

Note:  Some questions only apply to relief organizations so read carefully.

How Can I Spend the $10,000?

• Spend the SBA Loan Grant on sick leave for team members unable to work due to the direct effect of economic injury.
• Meet payroll to retain team members.
• Cover interrupted supply chain costs, rent, or mortgage payments. Repay obligations caused by revenue loss.

Will my Credit Score Be Released?

The SBA is authorized to check credit before approval which may affect your credit.SBA guidance on credit pulls is at https://www.sba.gov/blog/credit-inquiries-what-you-should-know-about-hard-soft-pulls

WHERE DO I APPLY?         https://covid19relief.sba.gov/#/

CAN I APPLY FOR MORE THAN $10,000 THROUGH THE EIDL PROGRAM AND STILL GET A PPP LOAN?

• If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan.

• If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.

• Must demonstrate “substantial economic injury”.
• Without the PPP rollover, no loan forgiveness is available.
• You may apply for up to $2,000,000 of disaster-related relief.
• Loans up to $200,000 do not require a personal guarantee under CARES Act.
• Over $200,000 all owners over 20% must personally guarantee.
• Over $25,000 requires collateral.
• 3.75% interest rate with 10-year term likely, 30 years maximum.
• Forms with instructions and portal upload link at https://www.sba.gov/disaster/apply-for-disaster-loan/index.html
• You can check status at https://www.sba.gov/funding-programs/disaster-assistance towards the bottom of the page, see envelope icon.

ARE THEY ANSWERING THE PHONE? 

Yes, we’ve connected several times with the Customer Service Center at 1-800-659-2955

Key 2 – Furlough Decisions & Unemployment

SHOULD I FURLOUGH EMPLOYEES & SUBCONTRACTORS SO THEY CAN APPLY FOR UNEMPLOYMENT BENEFITS?

• YES – If I cannot pay my employees.  Owners that are W-2 employees can get unemployment.
• MAYBE – If I have cash on hand and/or can stay
  partly open.  Employees earning up to 30%
  of regular pay (may vary by state) can qualify for partial unemployment.
• Federal Unemployment benefits add $600/week through July 31, 2020. apply to your state unemployment to receive this benefit automatically

HOW WILL UNEMPLOYMENT AFFECT PAYROLL PROTECTION LOAN FORGIVENESS (PPP)?

Furloughs may reduce loan forgiveness, HOWEVER – Reductions in full-time wages between February 15, 2020, and April 26th, will not reduce the amount of loan forgiveness, IF full employment returns by June 30, 2020.
[U.S. Chamber PPP Guide]

If you cannot restore full employment by June 30, 2020, normal proration rules below will apply.

Rules if you don’t meet the re-employment exception:

Unemployment before taking a PPP loan, may affect the size of the loan you can get, since the loan amount is based on average monthly payroll for the 12 months before the loan.  

For example, eight weeks of furlough will lower the loan amount by about 15%
(8wks/52wks). One week only has a 2% effect. 

Unemployment
eight weeks after obtaining a PPP loan, may affect the amount of loan forgiveness. A one-week furlough after the PPP loan drops loan forgiveness by 12.5%. Two weeks results in a 25% reduction. Eight weeks of full furlough after the PPP loan ends any loan forgiveness. 

Plan your PPP application timing carefully. If you have already furloughed employees, then time your loan to start when full employment begins again for maximum loan forgiveness.

Key 3 – Payroll Protection Program Loan (PPP)

• This is an SBA 7(a) federally guaranteed loan, that may be partly forgiven. Apply at a bank that is a preferred SBA lender.
• Applications are becoming available the week of March 30^th.
• The application deadline is June 30, 2020.
• No collateral or personal guarantees needed.2-year term at 0.5% interest

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

See program overview at https://www.sba.gov/funding-programs/loans/paycheck-protection-program-ppp#section-header-0

Who is Eligible?

• Businesses under 500 employees, sole proprietors, independent contractors, a person who is self-employed and regularly in business, among others.
• In operation before February 15, 2020, and had W-2 employees or paid independent contractors.
• The loan is necessary to support ongoing operations.
• Will use loan proceeds to retain workers, payroll, mortgage, lease, and utilities.
• Has not received a similar type loan since February 15, 2020 (except the $10,000 grant which can be rolled into this loan).
• Has not applied for other loans duplicating this purpose.

WILL DOCUMENTATION NEED TO BE SUBMITTED?

Payroll tax filings, 1099-Misc, financials may be needed, banks are developing checklists.

HOW MUCH CAN I BORROW?

• 2.5 times average monthly payroll for the 12 months prior to the loan.
• Funding is limited, so time is of the essence.
• See page 3 of the U.S. Chamber of Commerce “Coronavirus Emergency Loans Small Business Guide and Checklist” for further details.

WHAT ABOUT LOAN FORGIVENESS?

• Based on qualified spending in the 8 weeks after the loan is originated.
• Forgiveness is prorated based on employment levels in those 8 weeks compared to prior periods.
• Qualified spending includes wages, commissions, tips, self-employment income, vacation/sick/medical leave, group health care benefits and premiums, retirement benefits, state/local payroll tax.
• Expect that 75% of spending must be for payroll.
• Wages over $100,000 are excluded.
• If you received a $10,000 SBA EIDL advance loan/grant it will reduce the forgiveness amount.
• See page 4 of the U.S. Chamber of Commerce “Coronavirus Emergency Loans Small Business Guide and Checklist” for further details.
• It is possible that your entire loan can be forgiven if your 8 weeks of expenditures equal the 2.5 times average monthly pay.

STEP 4 – Other Federal and State

Programs

Confirm other loan programs do not disqualify you from applying for
the PPP loan.

Note 1
– Affiliated Groups

Companies under common control/ownership, or economically dependent are considered one entity.

Example: Five doctors each have their own S corps, each of which is a 20% partner in medical practice.  They are all dependent economically on the practice, so only one SBA application can be made, normally by the partnership.

AFFILIATION EXCEPTION under COVID-19 rules –
affiliation rules are waived for restaurants, hotels, franchises in the SBA
directory and SBIC’s.

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