Small Business Administration (SBA) Loans

Small Business Administration (SBA) Loans                         Click to view 

SBA 7(a) Loan- Paycheck Protection Program (PPP)

The CARES Act amends the Small Business Act (SBA) to create a new Business Loan SBA 7(a) Program category (hereinafter, the “program”). For the period from February 15, 2020 to June 30, 2020 (covered period), the law allows the Small Business Administration (Administration) to provide 100% federally-backed loans up to a maximum amount to eligible businesses to help pay operational costs like payroll, rent, health benefits, insurance premiums, utilities, etc. You may apply for this loan through the SBA or SBA Lenders (most banks). Subject to certain conditions, loan amounts are forgivable (see more detailed discussion on loan forgiveness below).

  • No Collateral or Personal Guarantees are permitted to be required by Lenders.
  • Interest Rate cannot exceed 1%
  • No Fee charged to the borrower and no prepayment penalty
  • The SBA has no recourse against any borrower (individual, shareholder, partner, member) unless the money is used for unauthorized purposes.
  • Can apply for this loan and the SBA EIDL Loans

Eligibility –

  • Company employs 500 or fewer employees
  • Must be able to certify "current economic uncertainty makes the loan request necessary to support the ongoing operations of the Applicant."
  • Special eligibility for the Accommodations and Food Services sector (NAICS 72)
    • Entity affiliations are waived for the NAICS 72, franchises with SBA Franchise Identifier codes (means that if you are a franchisee of a large franchisor, -Marriott, McDonalds, etc) and your company has fewer than 500 employees, you are eligible.

Maximum Loan Amount – Lesser of:                    click to view

  • $10 Million OR
  • 2.5 times the Average total monthly payroll cost incurred in the 1 year period before the loan is made PLUS the balance of previous SBA loans refinanced under this program. Different rules if you are a new company not yet in existence for 1 year.

Example: Your average monthly salary is $50,000 per month. You may borrow $125,000.

Loan Uses:

  • Payroll Costs – Should makeu up at least 75% of the PPP Loan Amount
    • Pretty much all compensation up to $100,000 per person cap on an annualized basis.
      • Excludes compensation over $100,00 per person (annualized) certain federal taxes and any Sick or Family Leave employees for which the company is claiming the credit.
    • Group Health Benefits
    • Any Retirement Benefits
  • Other Costs can equal up to 25% of the PPP Loan Amount
    • Rent/Lease payments
    • Utilities
    • Interest on debt incurred before the covered period.

Loan Forgiveness and Payment Deferral    click to view    

Deferral - Businesses operating on February 15, 2020, and that have a pending or approved loan application under this program are presumed to qualify for a payment deferral of 6 month - 1 year.

Forgiveness – The loan principal is forgiven equal to the following costs incurred and payments made for:

  • Payroll Costs 75%
  • Other Costs -25%
    • Interest Payments on Mortgages (for loans prior to 2/15/20)
    • Rent &
    • Utilities

These forgiveness amounts shall be reduced by any employee cuts or reductions in wages.

  • Reduction Formula: Maximum Available Forgiveness TIMES Average Number of Full-time Equivalent Employees (FTEs) per month DIVIDED by either (1) Average number of FTEs per month employed from 2/15/19 – 6-30-19 or (2) Average number of FTEs per month from 1/1/2020 -2/29/20. This is calculated for the Covered Period, which is 2/15/20 – 6/30/20.

If you furlough employees, but rehire them before 6/30/20, the Reduction Formula above will not reduce the loan forgiveness. The CARES Act notes that employers with tipped employees (as described in the Fair Labor Standards Act) may receive forgiveness for additional wages paid to those employees.

Example: You borrow $125,000 and you have 10 employees for the periods 2/15/19 – 6/30/19. On April 1st , you fired 1 employee. The loan forgiveness will be calculated:

 $125,000 X 9 FTEs / 10 FTEs = $112,500) Only this amount of the loan can be forgiven. It’s actually slightly higher than this as the number of days in the 2 periods have to be taken into account.

Documentation -Borrowers seeking forgiveness of amounts must submit to their lender –

  • Documentation verifying FTEs on payroll and their pay rates;
  • Documentation on covered costs/payments (e.g., documents verifying mortgage, rent, and utility payments);
  • Certification from a business representative that the documentation is true and correct and that forgiveness amounts requested were used to retain employees and make other forgiveness-eligible payments; and
  • Any other documentation the Administrator may require.

SBA 7(b) Loans - Economic Injury Disaster Loans (EIDL)

You can apply for a SBA Economic Injury Disaster Loan (EIDL). I have attached the applications for your review, but you should apply online.  The interest rate is 3.75% and the repayment term can be as long as 30 years.

To apply for an EIDL, go to: https://disasterloan.sba.gov/ela/

While you may apply for a PPP (7(a) loan) and an EIDL (7(b) Loan), you cannot request money for the same need. For instance you may be able to receive a PPP loan for Payroll and an EIDL to buy new inventory.

Under the Senate CARES Act:

Changes to the Existing EIDL SBA 7(b) Loans

  • Waives personal guarantees of $200,000 or less for each applicant
  • Waives the 1 year in business requirement
  • Waives the requirement that business should first find a loan elsewhere
  • Allows the SBA to approve loans based on credit scores (no tax return to be submitted)
  • Allows an emergency advance of $10,000, which does not have to be repaid even if the loan is not granted.
  • NOTE: You cannot receive a Payroll Protection Program Loan (SBA 7(a)) and an EIDL (SBA 7(b)) and use for the same purpose
    • Senate Explanation: “Provides a limitation on a borrower from receiving this assistance and an economic injury disaster loan through SBA for the same purpose. However, it allows a borrower who has an EIDL loan unrelated to COVID-19 to apply for a PPP loan, with an option to refinance that loan into the PPP loan. The emergency EIDL grant award of up to $10,000 would be subtracted from the amount forgiven under the Paycheck Protection Program.”

The EIDL Loans can be used for:

  • Providing sick leave to employees unable to work due to direct effect of COVID-19;
  • Maintaining payroll during business disruptions during slow-downs;
  • Meeting increased supply chain costs;
  • Making rent or mortgage payments; and
  • Repaying debts that cannot be paid due to lost revenue

NOTE (IMPORTANT): Filing the SBA application for the EIDL is just getting you into the SBA Queue.



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