March 26, 2020
A significant part of the assistance to small businesses included in the acts are loans administered by the SBA
A small business is defined as business with less than 500 employees.
It includes the following programs:
Paycheck Protection Program
A Paycheck Protection Program (PPP) is created with a $350 Billion funding which essentially expand the existing primary SBA lending program called 7(a) loan. This program will provide small businesses and other entities with loans up to $10 million.
Allowable use would include payroll support (including paid sick or medical leave), employee salaries, mortgage payments, insurance premiums and any other debt obligations.
The loan period would be from February 15,2020, to December 31, 2020.
Limited to company with fewer than 500 employees.
Eligibility criteria would include:
- Business was operational on Feb 15, 2020
- Business had employee and paid salaries and payroll taxes or independent contractors
- Business has been substantially impacted by Covid-19
Reimbursement of principal and interest are deferred for up to a year.
All borrower fees are waived.
The loan would be forgiven in an amount equal to the amount spent by the borrower for a period of 8 weeks after the origination of the loan on the following:
- Payroll costs
- Interest on mortgage incurred before Feb 15, 2020
- Rent, lease existing prior to Feb 15, 2020
- Utility for which service existed before Feb 15, 2020
The amount forgiven would be reduced in proportion to any reduction in employees retained compared to the prior year and to the reduction in pay of any employee beyond 25% of the prior year compensation.
Companies that would rehire workers previously laid off will not be penalized for having reduced payroll at the beginning of the period.
This temporary emergency assistance through the U.S. Small Business Administration (SBA) and the Department of Treasury can be used in coordination with other COVID-financing assistance established in the bill or any other existing SBA loan program.
The bill requires the SBA Administrator to set a cap on how much a bank can earn to process loan applications and prioritize underserved borrowers, including those in rural communities, minorities, women, and veterans.
These loans will be run through the banks
Emergency Economic Injury Grants
The stimulus includes $10 billion in funding for a provision to provide an advance of $10,000 to small businesses that apply for an SBA economic injury disaster loan (EIDL) within three days of applying for the loan.
The EIDL advance does not need to be repaid, even if the grantee is subsequently denied an EIDL, and may be used to provide paid sick leave to employees, maintaining payroll, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments. Eligible grant recipients must have been in operation on January 31, 2020. The grant is available to small businesses, private nonprofits, sole proprietors and independent contractors, tribal businesses, as well as cooperatives and employee-owned businesses.
- Loans of up to $2 million
- Interest rates up to 3.75 percent for companies
- Principal and interest deferment for up to 4 years.
The loans may be used to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses.
A business that receives an EIDL between January 31, 2020 and June 30, 2020 as a result of a COVID-19 disaster declaration is eligible to apply for a PPP loan or the business may refinance their EIDL into a PPP loan. In either case, the emergency EIDL grant award of up to $10,000 would be subtracted from the amount forgiven in the Paycheck Protection Plan.
The bill provides $562 million to ensure that SBA has the resources to provide Economic Injury Disaster Loans (EIDL) to businesses that need financial support.
The EIDLS are run directly by the SBA and you can apply online by clicking through the following link: https://disasterloan.sba.gov/ela/
Debt Relief for Existing and New SBA Borrowers
The stimulus includes $17 billion in funding for a provision to provide immediate relief to small businesses with standard SBA 7(a), 504, or microloans. Under this provision, SBA will cover all loan payments for existing SBA borrowers, including principal, interest, and fees, for six months. This relief will also be available to new borrowers who take out an SBA loan within six months after the President signs the bill. The measure also encourages banks to provide further relief to small business borrowers by allowing them to extend the duration of existing loans beyond existing limits; and enables small business lenders to assist more new and existing borrowers by providing a temporary extension on certain reporting requirements. While SBA borrowers are receiving the six months debt relief, they may apply for a PPP loan that provides capital to keep their employees on the job. The six months of SBA payment relief may not be applied to payments on PPP loans.
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This article only includes general information and IMS is not, by means of this article, rendering any tax, legal or other professional services. This communication should not be relied upon for any decision or action that may have an impact on your business. Prior to taking any action, you should be in contact with your advisor.