COVID-19 Small Business Loans Forbearance

“We’re all in this together” means so much more than it did just a few weeks ago. TLGNWA is proud to stand with our clients and provide information and resources on the rapidly-changing legal landscape.

Coronavirus Aid, Relief and Economic Security Act

Currently in consideration by the House of Representatives is the Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed by the Senate earlier this week. This is a wide-ranging relief bill that is designed to provide a boost to the U.S. economy at all levels, from individuals and households up to large corporations. Crucially, America’s small businesses will be provided range of relief options to care for their employees and to keep moving forward in this trying time. Please note that the House can modify any of these listed provisions prior to passage, and there will certainly be further guidance issued by the Treasury Department and the Small Business Administration. As more information becomes available, TLGNWA will continue to keep you informed.

Economic Injury Disaster Loan

There are two main areas of focus for small businesses: the Economic Injury Disaster Loan (EIDL) and the Paycheck Protection Program. Both of these programs are administered by the U.S. Small Business Administration (SBA). The EIDL for coronavirus were included in the federal emergency declaration in response to the coronavirus pandemic. The EIDL is a loan up to $2 million dollars at an interest rate of 3.75% for small businesses (2.75% for private nonprofits): a fact sheet from the Small Business Administration on EIDL is linked at the bottom of this blog post. Applications can be made at https:disasterloan.sba.gov/ela and small business are heavily encouraged to apply as soon as possible, as there will be a rush of applications and the approval process can take some time: these loans can take a month in normal times to be approved. While you can go ahead and apply for that loan, read further here about the careful steps you need to take in this situation.

Paycheck Protection Program

The other program, the Paycheck Protection Program (PPP), is an emergency lending facility, administered by the SBA under its 7(a) lending program: the purpose of that program is to provide loans with favorable terms to borrowers impacted by this pandemic. The CARES act injects $349 billion in new lending capacity by the Federal government to combat the pandemic’s effects. Businesses and 501(c)(3)s with less than 500 employees are eligible for the PPP, as are sole proprietors, independent contractors and self-employed individuals. Businesses in the hospitality and food industry that have less than $500 million in gross receipts with more than one location could also be eligible at the store and location level, if the store employs less than 500 workers. The PPP provides a federally insured, partially forgivable loan at 4% interest and can be used to cover payroll costs, including costs related to the continuation of group health benefits, employee salaries, commissions, or similar compensations, payments of interest on mortgage obligations, rent, utilities, and interest on any other debt obligation incurred prior to February 15, 2020. Borrowers are eligible for loan forgiveness equivalent to the sum spent on these covered expenses during the eight-week period after the loan is originated.

The maximum loan amount under the PPP is the lesser of $10 million or 2.5 times the average monthly payroll, based on the prior year’s payroll. A business can hire back employees they already fired and still have the loans forgiven: the business just had to be in business prior to that crucial February 15, 2020 date, and show the lender they have had employees on the payroll and maintained that payroll through June 30, 2020. “Lender” is important here because, unlike the EIDL, the PPP is going to go through lenders, both SBA-certified and non-SBA lenders, and not the SBA. You will therefore contact your lender to determine if they are participating in the PPP and follow their guidance for application. All lenders participating in the program, including banks, credit unions and other financial institutions will have delegated authority to process these loan requests without SBA approval. All borrower and lender fees will be waived for these loans, as well as collateral requirements and all requirements for personal guarantees. These loans will have automatic deferrals of principal, interest, and fees for at least six months and up to one year. Any portion of a PPP loan that isn’t forgiven will have a term up to 10 years and amortize the same as 7(a) loans.

Combining the EIDL and PPP – Use Caution

As we referenced earlier: before you go and apply for EIDL and PPP, keep in mind that they cannot be used for the same purpose: if you apply for and accept funds from one program, you will not be eligible for the other program if used for the same purpose. The current information we have is that if a business were to receive an EIDL for working capital, and a PPP for payroll assistance, this would be allowed. TLGNWA would therefore urge you to use caution in applying for these programs and to be sure to contact us prior to the submission of any paperwork, so we can evaluate and advise you.

TLGNWA is working hard to stay updated on all legislation to help small business owners, employers, and employees through this difficult time. This information is current as of the morning of March 27, 2020. Please call (479) 316-3869 or email us office@lawgroupnwa.com if you have any questions and we will be happy to help.