COVID-19

The CARES Act: Overview

The Coronavirus Aid, Relief, and Economic Security, or “CARES Act”

• The third emergency bill that Congress has prepared in response to the Coronavirus
  • (COVID-19) pandemic was signed into law on Friday, March 27, 2020.
• Keeping American Workers Paid and Employed Act (Sec. 1101 – Sec. 1114)
  • Subsidy for Certain Loan Payments (Sec. 1112)
  • Emergency EIDL Grants (Sec. 1110)
  • Paycheck Protection Program (Sec. 1102)
  • Loan Forgiveness (Sec. 1106)

Subsidy for Certain Loan Payments

• Sec. 1112: “(c) PRINCIPAL AND INTEREST PAYMENTS.— (1) IN GENERAL.—The Administrator shall pay the principal, interest, and any associated fees that are owed on a covered loan in a regular servicing status”
• Scenarios:
  1. Existing borrower not on deferment: six months of payments including principal, interest, and any associated fees beginning with the next payment due on the loan;
  2. Existing borrower on deferment: six months of payments including principal, interest, and any associated fees beginning with the next payment due on the loan after the deferment period; and
  3. New borrower: six months of payments including principal, interest, and any associated fees beginning with the first payment due on the loan, but only for new loans made within the first six months starting from the date of enactment (March 27th, 2020).

Economic Injury Disaster Loan (EIDL)

• The SBA’s Economic Injury Disaster Loan program provides small businesses with low-interest working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
• You may engage a third-party consultant to prepare your application and file on your behalf. However, before engaging a consultant, verify their credentials and service history.
• Sec. 1110. EMERGENCY EIDL GRANTS.
  • In response to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000.
  • The loan advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available within three days of a successful application, and this loan advance will not have to be repaid

Where to Apply: https://covid19relief.sba.gov/

Economic Injury Disaster Loan (EIDL): Eligible Applicants

• • Applicant is a business with not more than 500 employees
  • Applicant is an individual who operates under a sole proprietorship, with or without employees, or as an independent
    contractor.
  • Applicant is a cooperative with not more than 500 employees.
  • Applicant is an Employee Stock Ownership Plan (ESOP), as defined in 15 U.S.C. 632, with not more than 500 employees.
  • Applicant is a tribal small business concern, as described in 15 U.S.C. 657a(b)(2)(C), with not more than 500 employees.
  • Applicant is a business, including an agricultural cooperative, aquaculture enterprise, nursery, or producer cooperative, that is small under SBA Size Standards found at https://www.sba.gov/size-standards.
  • Applicant is a business with more than 500 employees that is small under SBA Size Standards found at https://www.sba.gov/size-standards.
  • Applicant is a private non-profit organization that is a non-governmental agency or entity that currently has an effective ruling letter from the IRS granting tax exemption under sections 501(c),(d), or (e) of the Internal Revenue Code of 1954, or satisfactory evidence from the State that the non revenue producing organization or entity is a non-profit one organized or doing business under State law, or a faith-based organization

Where to Apply: https://covid19relief.sba.gov/

Economic Injury Disaster Loan (EIDL): General Terms & Conditions

• • General Terms:
    • Loan Amount: Up to $2,000,000 (loans over $25,000 will require collateral)
    • Rate: 3.75%
    • Term: 30-years (6-month deferment)
    • Recourse: Personal guarantee is required
  • The applicant must have a credit history acceptable to the SBA
  • The applicant must show an ability to repay the loan
  • Funds are directly administered by the SBA
  • Funds may be used as working capital to fund payroll, fixed debts, accounts payable, and other expenses as approved by the SBA. The SBA may request payment records for up to three years after the loan is issued

Where to Apply: https://covid19relief.sba.gov/

Paycheck Protection Program (PPP)

• Sec. 1102: Paycheck Protection Program (PPP) authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. All loan terms will be the same for everyone.
• You may engage a third-party consultant to prepare your application and file on your behalf. However, before engaging a consultant, verify their credentials and service history. Consultants are not permitted to collect any fees from the Applicant.
• Timeline
  • Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
  • Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
  • The Paycheck Protection Program will be available through June 30, 2020

Frequently Asked Questions

• How can I apply for a PPP loan? You can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating.
• What is the interest rate on a PPP loan? 1.00% fixed rate (as of April 2nd)
• When will I begin paying principal and interest on my PPP loan? You will not have to make any payments for 6 months. However, interest will continue to accrue during those 6 months.
• Are there any fees? SBA has waived all guaranty fees, including the upfront and annual servicing fees. Lenders and Agents are not permitted to charge fees to the applicant.
• What will be the maturity date on a PPP loan? 2 years (only applies to unforgiven loan balance). There are no prepayment penalties or exit fees.
• Is a personal guaranty or collateral required? No personal guaranty or collateral is required to
  secure the loan.
• What forms do I need and how do I submit an application? At a minimum, “the applicant must submit SBA Form 2483 (Paycheck Protection Program Application Form) and payroll documentation.”

Information on this program is changing daily. We recommend you contact your lender for the most accurate and up-to-date information

How Much Can I Qualify For?

• Maximum Loan Amount:
  • Equals the lesser of (i) 2.5x the average total monthly payroll costs from past year, or (ii) $10 million
  • Alternate calculations for seasonal employers and businesses not in existence prior to June 30, 2019
• How do I calculate the maximum amount I can borrow?
  1. Aggregate payroll costs from the last twelve months for employees whose principal place of residence is the United States.
  2. Subtract any compensation paid to an employee in excess of an annual salary of $100,000 and/or any amounts paid to an independent contractor or sole proprietor in excess of $100,000 per year.
  3. Calculate average monthly payroll costs (divide the amount from Step 2 by 12).
  4. Multiply the average monthly payroll costs from Step 3 by 2.5.
  5. Add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020, less the amount of any “advance” under an EIDL COVID-19 loan (because it does not have to be repaid).

How can PPP loans be used?

• The proceeds of a PPP loan are to be used for:
  • payroll costs;
  • costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
  • mortgage interest payments (but not mortgage prepayments or principal payments);
  • rent payments;
  • utility payments;
  • Interest payments on any other debt obligations that were incurred before February 15, 2020; and/or
  • refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020.

How can PPP loans be used?

• What qualifies as “payroll costs?”
  • Compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation;
  • cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips);
  • payment for vacation, parental, family, medical, or sick leave;
  • allowance for separation or dismissal;
  • payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement;
  • payment of state and local taxes assessed on compensation of employees;
  • and for an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation. (available starting April 10, 2020)

The CARES Act: Loan Forgiveness

• Can my PPP loan be forgiven in whole or in part? Yes. The amount of the loan forgiveness can be up to the full principal amount of the loan and any accrued interest.
  • At least 75% of the PPP loan proceeds shall be used for payroll cost
• How can I request loan forgiveness? You can submit a request to the lender that is servicing the loan. The lender must make a decision on the forgiveness within 60 days.
• What happens if PPP loan funds are misused? If you use PPP funds for unauthorized purposes, SBA will direct you to repay those amounts.