As a follow up to our overview of The CARES Act sent last week, the third Federal stimulus bill in response to COVID-19, I wanted to provide you with a quick update on additional guidance recently issued on the two key SBA loan programs available to business owners: the Payroll Protection Program (this is the program that will issue forgivable loans and every business owner should know about) and Economic Injury Disaster Loans.
The Payroll Protection Program (“PPP”)
- Signed into law on Friday, these are SBA loans administered by banks. $350 billion of loans will be issued.
- Businesses with < 500 employees, as well as self-employed individuals, can apply for a loan of up to 2.5x their average monthly payroll costs. Payroll costs include wages, health insurance, and retirement plan contributions, capped at an annual salary of $100,000 per employee. For example, if your business average monthly payroll is $50,000 the maximum loan is $125,000.
- If the loan is used for certain expenses (payroll costs, rent, utilities, etc.) during the 8 weeks following the origination of the loan, and as long as there is not a reduction in the number of employees or a greater than 25% reduction in wages paid, the borrower is eligible for complete loan forgiveness. This is a tax-free grant.
- The application was just released yesterday, a copy is attached for your review, and we understand that banks will start processing most loans this Friday (April 3rd) and next Friday (April 10th) for any self-employed individuals or independent contractors.
- There are two things that we recommend you do at this time:
- Calculate your average monthly payroll costs for the 12 months from April 2019 through March 2020 (you will likely need to substantiate this with payroll returns filed over that time period, so you should have those ready as well), and
- Contact your CURRENT business bank/banker. As mentioned, these forgivable loans will be administered by banks, and we have heard that bankers intend to take care of their existing customers first. Many lenders who have not done SBA loans in the past will start processing PPP loans. Each bank will have its own list of required documents that you will need to provide.
If we can help with the average monthly payroll calculations, or working through the requirements of maintaining your pre-COVID-19 payroll and/or reinstating terminated employees to meet this test, please let us know.
Economic Injury Disaster Loans (“EIDL”)
- These loans are administered by the SBA directly, not banks (Online Application: https://disasterloan.sba.gov/ela/).
- Businesses with < 500 employees, as well as self-employed individuals, can apply for loans of up to $2 million. Interest rates will be low, and terms will be 15 to 30 years.
- Eligible businesses may receive an advance of up to $10,000 within 3 days of submitting a loan application.
- Advances made prior to loan approval do not need to be repaid, even if the loan application is denied.
- Businesses will likely be able to receive a much larger loan under the EIDL compared to the PPP, to be used for a variety of operating expenses over a longer time period, but these loans are not forgivable.
As additional guidance is issued we will continue to keep you updated.