Doug Gober
on
This is a limited summary of the parts of the Bill passed by the Senate last night that are most likely to affect you. – I anticipate that we will have significantly more clarity, possibly as early as tomorrow. Please excuse the layman’s terms as we attempt to simplify things here.
To be eligible, a firm must have less than 500 employees and a business revenue cap of possibly $10MM. However, that amount is still unclear at this time.
The first two bullets below are part of the Keeping Workers Paid and Employed Act that was passed by the US Senate on March 25, 2020.
- Existing SBA loans – The relief Bill provides for the payment of all principal and interest for a 6-month period.
a. There is no need to apply. This payment program will be automatic for anyone who has an SBA loan.
b. The starting date for this plan is intended to be April 1st, but this is contingent upon approval by Congress, tomorrow, March 27th.
c. This has not been widely published nor highlighted because of the limit of small businesses with SBA loans.
d. In the event a borrower already has applied for a deferral, the 6 months of payments by the SBA will begin at the end of the deferral period.
e. All SBA loans closed within the 6-month period following the approval of the Bill will also be eligible for the same relief. - While we await the official name; for now, I’ll call it the Payroll Plan Loan since it is based on certain expenses.
a. It appears the following expenses will be included – wages & salaries plus cash tips, group health insurance, employer retirement benefit contributions, company-paid employment taxes, rent, mortgage and utility payments plus any other debt obligations.
b. The historical timeframe to be used to determine the base for the calculation is not totally clear, but the expectation is that the SBA will use the total of the above expenses for 2019 divided by 12 and multiplied by 2.5 to determine the loan amount.
c. This amount will become a 10-year, 4% fixed loan that begins in May 2021. The loan may be used for payroll (including all the above payroll related items), rent, utilities and mortgage payments excluding principal (interest).
d. The amount of the loan spent during the first 8 weeks after the loan is issued will be subject to forgiveness one year after the loan date.
e. Any amount of the original loan that was not used in the first 8 weeks will not be forgiven and be put on the 10-year, 4% fixed status in May 2021.
f. This loan is conditioned on employee retention. The employee census as of March 1 will be compared to the census as of June 30. The minimum retention is calculated at 75%. It is prorated if the employees retained fall below the 75% mark. This program is available through 6/30/20. - SBA’s Economic Injury Disaster Loans that were included in the first recovery package passed by Congress.
a. Up to $2 million is assistance for each affected small business.
b. The intent of the loans is to help overcome the temporary loss of revenue being experienced as a result of COVID-19 pandemic.
c. Loans are 30-year with a 3.75% interest rate.
d. The amount of the loan and the term will be based on the borrowers needs and ability to repay the loan.
e. The application has been available online and is receiving huge interest, but as of this morning the process has now been changed. Here is the link . - There also may be an additional bonus loan possibility for those who have kept their employees throughout the shutdown.
As best can be determined, the loan programs in items 2 and 3 have no personal guarantees, no collateral requirement, and are 100% guaranteed by the US Government. This is to give the implementing banks the incentive to loan the money, but there will inevitably be some sort of underwriting process.
I’m confident that we will get clarity over the next few days after the House approves the Bill. Please know that this information is fluid and has changed many times over the past week. As the Bill ultimately passes Congress and details emerge, we will provide more details.