Good afternoon everybody -
Well geez. This is a fluid situation, but I wanted to give everybody a quick update to clarify some of the questions that have floated over. I just received a bunch more info and clarity on the act and wanted to provide some insights quick for you.
Before you get too excited, please note that these programs are still weeks away from being operational. Every institution and lender has to build brand new systems to review and process all of these loan applications. We all need patience.
- First, clarity on terminology. There are essentially 2 loan programs that were approved via the CARE act:
o Payment Protection Program (PPP), which also loosely called the Payroll Support Program
o Economic Injury Disaster Loan (EIDL), which also includes grants
- PPP Overview
o Eligibility:
- Under 500 employees
• Includes normal business types plus sole-props, independent contractors, and self-employed individuals
- Lenders to determine if the business was operational on 2/15/20 and had employees or 1099ers it paid.
- Borrowers will need to certify the loan is necessary due to the uncertainty of the economy due to COVID-19
- Borrowers cannot double-dip funds for the same uses from another SBA program
- NOTE: There is no review of prior cash flow or tax returns to determine eligibility.
o What is to be covered:
- Your anticipated expenses from 2/15/20 through 6/30/20. Maximum loan amount is the lesser of
• $10 million, or
• The total of
o Avg total monthly payroll (includes salaries, commissions, health care benefits, etc.)
o Interest payments on mortgage obligations
o Rent
o Utilities
o Interest on debt acquired prior to 2/15/20
- Couple things to note on the calculation/coverage:
• Individuals on payroll are excluded from the payroll calc if their salary exceeds $100K in the covered period
• Independent contractors/sole proprietors are excluded if income exceeds $100K prorate for the year
o YES, that appears to be an unnecessary conflict, and I’m hoping it won’t shake out that way when this is finalized.
• Compensation for employees outside of USA is excluded.
o Loans are 100% guaranteed by US Government (0% risk for banks)
o No collateral or ‘credit elsewhere’ check required
o Term loans amortized over 10 years at a max of 4.0% interest (for balance that isn’t forgiven)
o Oh yeah, these might get forgiven…. Here is what we (think we) know:
- Eligible for forgiveness is the sum total of costs between 2/15/20 and 6/30/20 unless otherwise noted:
• Amount spend on payroll costs during the 8 week period after the origination date
• Interest payment on mortgages (if loan was prior to 2/15/20)
• Rent (if in force prior to 2/15/20)
• Utilities (if in force prior to 2/15/20)
- Payroll costs above $100K are excluded (my interpretation is that is per-employee, not a cap of total payroll)
- Wages will be compared to prior year to ensure you have maintained employees/wages.
• If it is less, the forgiveness will be ratcheted down proportionately.
- You are encouraged to re-hire employees that have been laid off and not be penalized for having a reduced payroll at the beginning of the period.
- Borrowers will need to verify their payments with documentation to lenders
- Forgiven debt in this program is not taxable.
EIDL Overview
o These rules are a bit murkier and/or confusing right now. It is likely that the goal is to push people towards the PPP program so that lenders can help (EIDL is administered directly by the government). It should be noted the website for this program has been off-line the past couple days – likely to re-tool it for the new program.
o Eligibility:
- Well, right away things get a bit murky. Below is what the language indicates, but seems to leave out a lot of companies….
- Tribal businesses, cooperatives, & ESOPs under 500 employees
- Individuals operating as a sole proprietor or an independent contractor
- Private non-profits
- You do not need to be in business for at least 1 year prior to the disaster
o What is covered:
- There doesn’t appear to be any specific things that are covered (unlike PPP)
o How does it work:
- SBA is empowered to approve these loans based solely on an applicant’s credit score (or they can use some other alternative method to determine the ability to be repaid)
• We have no idea what that credit score needs to be…
• Personal guarantees are not required for loans under $200K
- There is a rapid-deployment trigger to get $10K distributed within 3 days of an application (this is the Grant portion)
• Advances are to be used for payroll, obtaining COGS-type materials, rent/mortgage, certain payables/debt
• If the application is later denied, the $10K doesn’t need to be paid back
• Borrower will need to certify they are an eligible applicant (subject to penalty of perjury)
- It appears the SBA Line of Credit limit has also increased from $350K to $1 million.
- Not sure what is going to happen to any new/regular 7a loans
I’m happy to chat if you have questions, just carve out some time on my calendar:
https://calendly.com/bg-seemorehawk
Brian Gramm
brian@seemorehawk.com
M 605-929-6740