The highly publicized $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed last Friday, March 27th. Since then, businesses, banks and advisors have been scrambling to clarify more details about a cornerstone of the new act, the Paycheck Protection Program (PPP). This program currently provides $349 billion of funding for loans to businesses of generally 500 employees or less which, if used for payroll, rent, utilities and other allowed costs over the subsequent eight weeks, may be forgiven by the government at no cost or tax to the borrower. This appears to be a great way to keep people employed and ready to jump back into action once the closures and restrictions have been lifted. You can certainly apply for a loan under this program, but you may need to act fast. Many feel that the demand for this program may exceed the allocated funds. Applications for small businesses and sole proprietorships open April 3rd, (this Friday), applications for independent contractors and self-employed individuals begin April 10th. The United States Treasury “Information Sheet” which can be found here provides a good summary of the program and some answers to the most frequent questions.
It should be noted that the SBA has relaxed many of the typical requirements for a 7(a) SBA loan including collateral, owner guarantees, and some current financial reporting requirements in order to streamline this process, however, the applicants (business and each owner of 20% or greater) will need to attest to the good faith accuracy and necessity for the loan. Here you will find a .pdf of the application.
There are several other programs which are available to most businesses in addition to the PPP, including:
EIDL – Economic Injury Disaster Loan: This is the loan program initially funded about two weeks ago, and allows businesses to apply for an advance of up to $10,000 in addition to the remaining principal of the loan. The portion of the principal related to the advance is unconditionally forgivable, and any EIDL loan originated between 1/31/2020 and the date for which PPP loans are made available may be refinanced under the PPP. Additionally, recipients may receive a PPP loan for other operational purposes other than what was borrowed under the SBA Disaster Loan.
Maryland State Disaster Recovery Programs: These programs also provide loans, grants and funds to pay operating expenses including payroll, supplies, rent, fixed debt payments and other mission critical operating expenses. Programs are for businesses with under 50 full and part time employees, or a Maryland manufacturer.
Here are some basics we suggest:
- Talk with your business advisor and evaluate which program is best for your organization and employees. This should unfortunately include the evaluation of state unemployment benefits, and the use of sick pay under the Families First Coronavirus Sick Act which includes the Emergency Paid Sick Leave Act
- Call your current bank/lender, today and let them know you are interested in applying for the PPP. To apply for the PPP, you will need a lender certified with the SBA, which most banks are. Call them and discuss your eligibility for this program. Please note: many banks will only be servicing their current customers and those in urgent need without an SBA certified banking relationship.
- Gather appropriate supporting application documents needed to apply for the loan(s) including:
- Your latest internal and/or external financial statements and previous twelve-month financial statements for each borrowing entity
- Copies of corporate or partnership income tax and payroll tax returns
- Current and prior year payroll reports and payroll returns.
- Data on your current number of employees and current payroll summary
- Monthly payroll reports for the previous twelve months
- Current mortgage or rental statement
- Documentation on health insurance premiums for the last twelve months
- Documentation on all retirement plan funding for the last twelve months
- Current utility invoices
- Have available corporate organizational documents/agreements
- Copies of driver’s licenses for each 20% or greater owner
Be prepared to submit all this information to your lender at once. Please see the United States Treasury website on the Payroll Protection Program.
- Speak with your current lender about your other outstanding debt and see if they can defer principal payments for 3-6 months. Many are doing this for some current customers.
Keep on top of your loan application and your current business situation. Budget your cash and resources through this disruption. One of the main purposes of the various stimulus packages including the loans mentioned above is to enable business owners to recover quickly with healthy, loyal, knowledgeable employees who are ready to jump back into action. This will enable a faster economic recovery overall. Remember, your employees need a strong business to return to. Good choices now and over the next few weeks will allow your business, employees and customers to recover quickly.
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