CORONAVIRUS EMERGENCY FUNDING FOR SMALL BUSINESSES

 

There are two types of SBA loans that are available to business owners during this time of need: the 7(a) which is financial assistance program under the Payment Protection Plan (PPP) and the Economic Injury Disaster Loan (EIDL).  You do have the option to apply for both, however, there is a limitation on receiving assistance from both for the same purposes.  If you already have an SBA in place, this does not mean you cannot apply for one of these programs.

 

Please note that this information is very new and still being reviewed and understood.  I personally have not read the legislation directly, but am working with someone who has.  There is still a lot of uncertainty and vagueness to how it translates practically but I will be sure to update as information develops.  

Below are my take aways:

 

 · Must have less than 500 employees

 · You must have at least 75% of employees from prior 02/15.  If you have let people go       

    recently, you can rehire them to bring your business back to the 75%.  It is not clear 

    whether it needs to be the same employees.

·   It has not been decided yet whether it will be an average of 2019 payroll costs, or your    

    current payroll.

·   Employees must be based in the US (no oversees employees will be included)

·   If you are an owner on payroll (S Corp) you can be included in the employee calculation.  It     has not been mentioned how sole proprietors who do not have a formal method of 

    payment would be handled.

·   The max cap that you can have per employee is $100k annually.  This can include 

    commissions and bonus.

·   It will be up to the Lender to determine whether your business was in operation 02/15   

    what was paid for payroll.

·   As a business owner, you will be required to sign an affidavit that your business has been 

    adversely affected by COVID19 with proof of back up.

·   Your prior financial data or revenues will have no impact to the decision of the loan.

What costs are covered?

 - Payroll costs - including 401k match and benefits

 - Mortgage or rent related to the business

 - Utilities

 - Interest rates on prior debt before 02/15/2020

How much can I get?

The loan will be roughly based off 4 1/2 months of costs.  2 months of this will be 

   forgiven (i.e. you do not need to pay back) and the remaining 2 1/2 months will convert into 

   an amortized loan to be paid within 10 years at maximum 4% interest.  

 

Loan payments will defer between 6 - 12 months

 

There will be no penalties for paying off early.

How can I apply?

The application process is not live yet and as you can imagine everyone will be trying to apply.  It is provisionally rumored that applications will open next week.  I would advise to start preparing the numbers so you are ready to get your application in.

 

What the latest process is that PPP will be available through participating financial institutions such as your bank.  You will want to check with your bank whether they will be participating and under what criteria.  For example, they may only be accepting loans up to $350k so if your costs are more than that then you will need to find another bank that will be accepting loan requests more than $350k.  If your bank is not participating then you will need to find a bank that is.

 

You can apply for the EIDL through the government directly. 

 

It is guesstimated that the process will be tough but should be able to start to see the flow of money come in 3-4 weeks time.  Please consider this as you are managing your cash flow.  

 

The question was asked "what happens if the money runs out?" and the answer was "there is a strong possibility that the government will add more money, but will different criteria based off what is learnt from this process".

This is a very top level review of the legislation and I'm sure there is much more to cover and more definition as this gets reviewed and questioned.

 

I am here to help with as many questions as possible.  I will personally be working with businesses who will be applying for these loans and will provide feedback and insight throughout the process.

Disclaimer - this legislation was passed less than 24 hours ago and the information is still being worked through and digested to be translatable to the business owner.  The information I share is for guidance and information only, and should not be taken as official legal or financial advise regarding this matter.

 

Please make sure that you speak to your local attorney, CPA, or financial adviser who will be able to advise you based on your personal situation.

If you have any questions please let me know!

 

Louise

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