COVID-19 CARES Act and SBA Business Assistance
There are two main loans: (1) the Revised Economic Disaster Loan (“EIDL”) and (2) the Paycheck Protection Program loan (“PPP”). You can apply for the EIDL directly on the SBA website. You can apply for the PPP with your local bank. If you follow certain requirements, a significant portion of the PPP loan may be forgiven.
Blue Williams, LLC’s Commercial Transactions and Business Practices Group is here to answer your questions on both loans. Our contact information can be found below.
1. REVISED ECONOMIC INJURY DISASTER LOANS
EIDLs are loans available to small businesses and non-profit organizations through the U.S. Small Business Administration (â€œSBAâ€) to provide financial assistance during the COVID-19 crisis. Under the recently-passed CARES Act, certain terms and conditions of EIDLs have been relaxed or expanded. The SBA has recently issued the following notice regarding EIDLs:
The SBA established a new on-line EIDL application for those whoÂ haveÂ and those whoÂ have notÂ already applied for an EIDL.Â Â Under the CARES Act, EIDLs are available to most business over or under 500 employees, regardless of their structure.Â The new on-line EIDL application provides for an advance of up to $10,000 from the SBA within three (3) days of the SBAâ€™s receipt an EIDL on-line application. These advances can be used for any allowable purpose for EIDLs, including maintaining payroll and operational integrity as a result of the COVID-19 crisis.Â If used for an allowable purpose, these advances are deemed grants that do NOT need to be repaid, even if an EIDL is not subsequently approved or accepted.Â Regardless of whether you decide to proceed with accepting an EIDL, we strongly recommend that you complete the on-line EIDL application in order to obtain up to $10,000 in grant funds.Â
If you wish to proceed with an EIDL, please note the following:
- EIDLs are directly administered by the SBA.
- Interest:Â 3.75% interest for small business and 2.75% interest for non-profits.
- Loan Amounts:Â Limited up to $2 million.
- Loan Terms:Â Terms can vary to a maximum of 30 years on case-by-case basis.
- Credit History:Â Applicant must have credit history acceptable to the SBA.
- Available Credit:Â Waives requirement that the applicant be able to find credit elsewhere.
- Repayment Ability:Â Applicant does not need to prove ability to repay.
- Personal Guarantee:Â Waives the personal guarantee requirement for advances and loans under $200,000.
- Collateral:Â No required collateral for loans under $25,000.
- Years in Business:Â Waives requirement that the applicant be in business for one year before the disaster.
- Insurance:Â Applicant may be required to obtain and maintain appropriate insurance.
- Refinance:Â Businesses that were issued an EIDL prior to the creation of the Paycheck Protection Program (PPP) may be eligible to refinance their EIDL to a PPP loan.
- Payment Deferral:Â No payments are due until the end of 2020.
- Use of Funds:Â Loan proceeds can be used for working capital, payroll costs, and other business expenses.
You will need the following information to complete the EIDL application:
- Business legal name, trade name, address, organization type, e-mail, date of establishment, and tax information (EIN, SSN, etc.).
- Gross revenues for the 12 month period ended January 31, 2020.
- Cost of goods sold for the 12 month period ended January 31, 2020.
- Number of employees as of January 31, 2020.
- Rental properties (residential and commercial only), lost rents due to the disaster.
- Non-profit costs of operations for the 12 month period ended January 31, 2020.
- Compensation from other sources received as a result of the disaster, and brief descriptions of other compensation sources.
- Current ownership structure.
- Business owner information (names, titles, SSNs, dates of birth, ownership %).
- Make sure to check the box that states: â€œI would like to be considered for an advance of up to $10,000.â€
- Banking information on where to wire funds (routing and account number, account name).
2.Â PAYCHECK PROTECTION PROGRAMÂ LOANS
The CARES Act also provided for theÂ PPP. This program provides loans subject to forgiveness from February 15, 2020 to June 30, 2020 to businesses and certain individuals as a result of the COVID-19 pandemic.
TheÂ following types of entities and individuals can qualify for PPP loans:
- Businesses, 501(c)(3) non-profit organizations, 501(c)(19) veteranâ€™s organizations, and tribal businesses that either employ 500 or fewer employeesÂ orÂ employ not more than the size standard established by the SBA for their industry.
- Sole proprietors, independent contractors, and self-employed individuals, subject to the provision of specific documentation, such as Form 1099-MISC and profit and loss statements necessary to establish eligibility.
- A food or accommodation business that has more than one physical location, but is designated under NAICS code 72, provided each location does not employ more than 500 employees.
- PPP loans will be administered through local banks and guaranteed by the SBA.Â Â We have attached information recently released by the SBA regarding the PPP and a list of Louisiana banks that will participate in the PPP.
- General Requirements:
- Business was in existence on February 15, 2020.
- Business was paying its employees or independent contractors prior to February 15, 2020.
- Interest:Â The interest rates is currently set at 0.50%.Â The interest will be the same for everyone.Â The SBA application fees will be waived.
- Collateral:Â No collateral or personal guarantee shall be required for the loan by the SBA.Â However, the local banks may have collateral and guarantee requirements.
- Loan Amount:Â Loans are limited or the lesser of (i) 2.5 times the average monthly Payroll Costs during the 12 months immediately preceding the PPP loan application or (ii) $10,000,000.
- Mortgage or loan interest.
- Utilities: Electricity, gas, and water, Telephone, Internet, IT services, Software services.
- Rent: Property, including property leased by a business back to itself, Equipment leases, Aircraft leases.
- Payroll Costs up to $100,000 per employee on an annualized basis, based on:
- Salaries, wages, commissions, and tips.
- Vacation, sick, and medical leave pay, except for sick leave already being credited through the Families First Act.
- Group health care benefit premiums, including vision, dental, disability, supplemental, etc.
- Retirement benefits.
- Severance payments.
- State or local employment taxes, but not payroll taxes, income taxes, or railroad retirement.
- Contractor payments.
- Special calculation rules apply for seasonal workers and self-employed individuals.
- Payroll shall not include employees with primary residences outside the U.S.
- Loan Terms:Â The term is currently set at 2 years.Â The term will be the same for everyone.
- LoansUse: Â Loans may be used for operational expenses such as payroll and benefits, interest on mortgage and debt obligations, rent, and utility expenses.
- Nonrecourse Loans:Â Loans will be nonrecourse to the business as long as the loan funds are not used for unauthorized purposes, such as compensation for employees with a primary residence outside the U.S.
- Tax Implication of Loan Forgiveness:Â Loan forgivenessÂ (i.e.,Â canceled indebtedness) shall be excluded from the businessâ€™s gross income for federal income tax purposes.
- Loan Repayment:Â Complete payment deferment is currently available for 6 months.
The primary feature of the PPP loan is that loan forgiveness will be available for certain operational expenses incurred by your business over 8 weeks. An employeeâ€™s payroll over $100,000 is not subject to forgiveness.Â Â However, it is imperative that the business note that there may be a reduction in loan forgiveness if (i) the number of employees or (ii) the payroll during the 8 week PPP loan covered period are reduced.Â Â
The SBA has highlighted the following:
- Your loan forgiveness will be reduced if you decrease your number of employees.
- Your loan forgiveness will be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
- You will have until June 30, 2020 to restore your employee numbers and salary levels for any changes made between February 15, 2020 and April 26, 2020.
- In order to apply for PPP loan forgiveness, a business will need to submit a formal application to the bank that originated the PPP loan, including:
- Documentation verifying the number of full-time equivalent employees and relevant pay rate, including state and federal payroll and unemployment filings.
- Documentation verifying covered payroll, interest on debt obligations, leaves, and utility payments (such as, canceled checks, receipts, and account statements).
- A certification from the recipient that all documentation presented is true and correct AND the amount for which the forgiveness is requested was used for permissible purposes.
- Any other documentation required by the SBA.
The bank will subsequently issue a PPP loan forgiveness decision within 60 days.
Please see all attachments for more information. As you can see, there is a lot of information to review and consider. We are available to answer your questions and to assist you in any way we can. Please give us a call at (504) 831-4019 or e-mail us.
Best regards and stay safe!Â
Blue Williams, LLCÂ
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