CARES Act Disaster Relief Loan Update
Filed under:Affordable Housing, Construction, COVID Updates, Dental, Family Business, FQHC, Healthcare, Nonprofit, Private Companies, Tax Strategies
We want to provide a short update to our April 1st post Business & Nonprofit Disaster Relief Loan Program Update and share a few reminders regarding the relief programs under the CARES Act.
One thing is clear, this is a moving target. The program’s administrative details are emerging daily, the access to bank programs are fluctuating, and the demand for relief is overwhelming the system. Here are a few thoughts in the moment about the various programs.
EIDL Loan Advance
This program is for any small business with less than 500 employees, and nonprofit organizations affected by COVID-19. This program is designed to meet short term working capital needs.
Organizations are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000. This advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available following a successful application. This loan advance will not have to be repaid.
This program is for short term working capital needs rather than payroll related expenses. Applications for this program are made directly through the SBA not through a bank. Online applications are here: https://covid19relief.sba.gov/#/
The Paycheck Protection Program
The PPP is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. Applications for this program are made through an SBA designated lender.
SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. This loan has favorable terms, a maturity of 2 years and an interest rate of 1%.
The SBA says “You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Lenders may begin processing loan applications as soon as April 3, 2020. The Paycheck Protection Program will be available through June 30, 2020.”
However it seems that each lender is taking a different approach. We have heard that some applicants were denied based on insufficient banking history and relationships. It seems some banks were overwhelmed with applications on April 3rd and shut down their programs. At least one national bank reported that it maxed out its capital reserve requirements on the first day of the program and stopped taking applications.
There are indications that the SBA will loosen some regulations and there is a possibility that there will be additional relief legislation passed to make more money available. However it is clear that the businesses that have developed very solid banking relationships have fared the best in taking advantage of this program.
There have been many questions about how to calculate payroll costs as part of the loan application. Again it appears that banks are taking various approaches. Some banks are providing payroll calculator worksheets as part of their application process. There has been ambiguity regarding whether or not to include 1099 work expenses and contributions to retirement plans. There is also a lack of clarity regarding the timing of payroll expenses and when to bring employees back to work and to ask them to move off of unemployment benefits. Do payroll expense have to be paid out prior to June 30th to be eligible for loan forgiveness? We are waiting for guidance on many of these questions.
On April 8th the SBA working with the Treasury did provide some additional guidance in this Paycheck Protection Program Loans – Frequently Asked Questions (FAQs).
We recommend contacting your banking relationship manager for loan application guidance, to gain clarity regarding their reading of the program rules and to stay abreast of program opportunities with your established lending institution.
SBA Express Bridge Loan
This program has not received as much visibility. Again, if you are waiting for longer term funds, you may wish to ask your banker about this program.
The SBA Express Bridge Loan allows small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 quickly. These loans can provide support to small businesses to help overcome the temporary loss of revenue they are experiencing and can be a term loans or used to bridge the gap while applying for longer term financing.
SBA Debt Relief
The SBA is providing various forms of debt relief on any of the loans that it services. Check with your banking relationship manager if you have an existing SBA business or real estate loan.