Article originally published March 25, 2020
Last updated March 26, 2020 

Based on our reading of the proposed Coronavirus Aid, Relief and Economic Stimulus (CARES) Act legislation passed late on Wednesday evening, March 25, 2020, by the Senate and now pending in the House (set for a vote Friday, March 27, 2020) it would appear that there will be two loan programs available to businesses who have been damaged by the pandemic:

  1. The first being Economic Injury Disaster Loans (“EIDL”) which were funded earlier this month, and
  2. The Paycheck Protection Loans, which are part of the CARES Act.

GBQ’s COVID-19 response team has dedicated resources to assist business owners in filing for the Small Business Administration (“SBA”) relief loans designed to assist small businesses suffering economic harm from the COVID-19 pandemic.

How can we help?

We know these are challenging times and that caring for your customers and employees is your top priority. GBQ can assist clients by completing the initial application for a flat fee in order to free up your time to focus on your business. Getting your application in as soon as possible is imperative as processing times are projected to increase as more businesses apply. We can help you get your application in quickly, accurately and with the appropriate information. As the application process progresses, we can also assist you in the later phases of information gathering and responding to any requests.

Further, if you do decide that the Paycheck Protection Loan is the right answer for you, and the loan stays substantially the same as the proposed legislation, a business will want to ensure that they are maximizing their opportunity for debt forgiveness by analyzing FTEs, rate of pay, and other variables. Businesses should also implement policies and procedures to ensure the business is spending the monies in accordance with the loan requirements and that procedures are in place to capture the appropriate information and support in order to maximize any debt forgiveness.

What is the process to obtain a loan?

That is a little unclear at this point with the pending legislation. However, it appears each loan will have different potential entry points:

  • Economic Injury Disaster Loans (“EIDL”): We believe that these will continue to be originated with the SBA. Those would go through the online SBA portal for application.
  • Paycheck Protection Loans: Coronavirus Aid, Relief and Economic Stimulus (CARES) Act provides for other banking institutions, other than the SBA, the ability to originate these loans. That means your regular lender, if it is SBA approved, could originate these loans. Current lenders through the Small Business Administration 7(a) can be found here.

What is the timeline?

While we do not know the exact timeline, the bill requires the SBA to issue implementing regulations within 15 days and the U.S. Department of Treasury will be approving new lenders.

Do I qualify?

As we mentioned above, there appear to be two paths for obtaining financing. In the table below, we have compared and contrasted those loans. The premise of the Paycheck Protection Act and its related debt forgiveness is to incent business to retain and pay as much of its workforce as possible and you will see that much of the focus of the lending and debt forgiveness is centered around payroll and workforce calculations.

 

Program Detail SBA Economic Injury Disaster Loans Proposed Paycheck Protection Loan
per the Pending CARES Act
.
.
  Loan Program Amount $50 billion. $349 billion.
.
.
  Loan Amount Up to $2.0 million – The SBA will use a formula to determine the amount. Up to $10 million maximum based on a multiple of 2.5 times the average monthly payments by the applicant for payroll costs incurred in the 1-year period before the date on which the loan is made.

Except in the case of a seasonal employer, then it is the average of the payroll of the 12 week period beginning on February 15, 2019, and ending June 30, 2019

.
.
  Loan Proceeds Use Payroll expenses, paid sick leave, accounts payable, debt service. Payroll costs, benefits costs, salaries and commissions, mortgage interest, rent, utilities, and interest on debt incurred before February 15th.
.
.
  Interest Rate 3.75% for business and 2.75% for nonprofits. No more than 4%.
.
.
  Terms Up to 30-year terms. Up to 10-year amortization after deferral period.
.
.
  Business Size Revenue and employee qualifications based
on NAICS code.
Revenue restriction would be lifted but
under 500 employees.*If NAICS code starts with 72 (restaurant and hospitality), employee size is determined by location and cannot exceed 500.
.
.
  Debt Forgiveness No provision for debt forgiveness. Provides for debt forgiveness based on a formula with inputs related to payroll costs, FTEs and any reduction in employee pay during the time period the pandemic is expected to last.
.
.
  Deferral of Payments 30 days. Minimum of 6 months, up to 1 year.
.
.
  Personal Guarantee Required by owners of 20% or more of the company, or at least one guarantor. No personal guarantee or collateral required.
.
.
 Prepayment Penalties Waived. Waived.
.

 

For more information, please contact your GBQ advisor or click here and a GBQ advisor will be in contact within 24 hours.

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