Information updated as of March 30, 2020:

We know cash flow may be a huge issue for your business.  The U.S. Small Business Administration (SBA) has just recently expanded working capital loan programs for businesses affected by the COVID-19 Pandemic and presidentially declared disaster areas known as an Economic Injury Disaster Loan (EIDL).  Because the business environment for the next month, 3 months, 6 months and even the next year or two will be uncertain, we are highly recommending that businesses look into these programs.  The following is the latest information we have and more specifics will be following.

SBA Expanded 7(a) Loan Program and Economic Injury Disaster Loan Program

Paycheck Protection Program loan (PPP).

  • SBA Section 7(a) Loans are the typical loans that are commonly available through most banks and other lenders approved by the SBA. The CARES ACT, signed into law on March 27, 2020, creates a new subtype of this loan called the Paycheck Protection Program loan (PPP).
  • These loans may have a principal amount of up to $10 million, but are limited to 2 ½ times the business average payroll, including paid sick and health care and benefits cost, for the payroll for the period March 1, 2019 through June 30, 2019. If the company was not in business in 2019, there is an alternate time frame which can be used.
  • These loans are available to all businesses with less than 500 employees and are 100% backed by the SBA.
    • They carry a maximum interest rate of 4% with no fees of penalties for prepayment.
    • No collateral or personal guarantees are required. SBA expects to have loan process in place by April 10, 2020.
    • They will be processed through your bank.  Many banks are refusing to accept new clients for this purpose.
    • SBA is responsible for approving the loans and they are saying they will have same day approval.
  • Funds can be used for payroll (wages, salaries, vacation, parental or family leave, severance, health care benefits and local taxes), rent or mortgage payments (loan or lease in effect before February 15, 2020), utilities (for service in effect before February 15, 2020).
    • Loans can be forgiven in an amount equal to the amount spent by the employer used for these purposes during the eight weeks following the origination date of the loan.
    • Forgiveness is reduced in proportion to (1) any reduction in the employees retained during the eight-week period as compared to the average number of employees from either (as determined by the borrower) February 15, 2019 to June 15, 2019 or from January 1, 2020 and February 29, 2020 and (2) any reduction in the pay of any employee beyond 25% of prior year compensation. Employees that received annualized wages or salary of more than $100,000 are not counted.
  • Borrowers that rehire workers laid off prior to the loan origination will not be penalized for having reduced payroll at the beginning of the period. Also, the loan forgiveness will not trigger recognition of cancellation of debt income for federal income tax purposes.
  • Detailed, complete and accurate recordkeeping will be essential to taking advantage of these provisions.
  • Borrowers must make a good-faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19; that funds will be used for a permitted purpose; and that they are not receiving funds from another SBS program for the same purpose. (See below for more information on this last item). Borrowers are not required to certify that they are unable to obtain credit elsewhere.

SBA Expanded Disaster Loan Program

  • On March 6, 2020 the Coronavirus Preparedness and Response Supplemental Appropriations Act was signed into law. It expanded the ways businesses could obtain loans including the Economic Injury Disaster Loan (EIDL).
    • The SBA issues EIDL loans directly at a low-interest (3.75% for small businesses for up to $2 million and a maturity of up to 30 years).
    • Terms are determined on a case-by-case basis, based on the borrower’s ability to pay. Applications are currently available on the SBA website.
  • If a borrower receives a PPP loan (discussed earlier), they are not able to receive an EIDL for the same purposes or co-mingle funds from another loan for the same purpose. HOWEVER, the PPP loan may be used to repay an EIDL loan.
  • There are no personal guarantees for loans up to $200,000 and no requirement to have been in business for at least one year. Borrowers do have to certify funds were not available from another source.
  • A $10,000 emergency advance (within three days of submitting an application) is available while an application is being processed. This advance is not required to be repaid.
  • Loan proceeds may be used to pay fixed debts, accounts payable and other costs, but are intended to replace lost profits and cannot be used for certain purposes, including debt refinancing, making payments on loans owed to other federal agencies, physical repairs, or to pay dividend to stockholder.

Existing SBA Express Loan

The CARES Act increases the maximum SBA Express Loan from $350,000 to $1 million through December 31 ,2020. These loan applications will be processed in 36 hours.

Additional information to consider

  • There is no application fee or prepayment penalty associated with an EIDL.
  • Additional funding if approved can be requested.
  • Loan payment deferral is also available up to 12-months for EIDL.
  • Unlike the EIDL, the funding of loans through PPP and other SBA loans are done directly through financial institutions--You must contact your bank as many banks will not accept new clients.

Please let us know if you need assistance with obtaining funds through one of these programs.