2020-04-01 CARES Act Loan Programs

Dear Clients and Friends of Raiche & Company:

On March 27th, 2020 the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which made available $350 billion for “Paycheck Protection Loans” (Paycheck Protection Program or simply ‘PPP Loans’) In addition, the Act made an additional $10 billion available for the Small Business Administration (SBA) existing Economic Injury Disaster Loan (EIDL).

These are two separate loan programs.  Businesses can utilize both programs as long as the funds are not used for the same purpose; therefore, the purpose of the loans must be made apparent and reporting must be extremely transparent among the various usages.

 Due to the loan forgiveness aspect of the PPP Loan, there has been tremendous outreach by businesses throughout the United States inquiring about this new program.  At this time, the SBA is urging all businesses to wait until the end of this week before taking any action as there will be additional information forthcoming about how to acquire these loans and who is eligible to receive them through the PPP application page of the SBA Website.  We ask that all clients be cautious of fraud, and do not disclose any personal information or pay any fees toward any Website claiming to be the PPP Platform.

Here are the specific of each of these new programs:

PAYROLL PROTECTION PROGRAM (PPP Loans)

• Loans up to $10 million will be made available to existing small businesses (under 500 employees) and be available through existing SBA Certified lenders including banks and credit unions.  There is no collateral or personal guarantee needed for these loans.  Any debt that is unforgiven (see below) MUST BE REPAID over 2 years at 0.5% interest.
• Eligible borrowers must make good faith certifications that they have been impacted by the COVID-19 pandemic and will use the funds to retain workers and maintain payroll and other debt obligations.
• The amount of the loan will be calculated based on the monthly payroll costs over the previous 12 months multiplied by 2.5 (not to exceed $10 million).
  • Payroll costs include:
    • Employee & owner salaries, commissions, or similar compensation
    • Payment of cash tips
    • Payment of vacation, parental, family, medical, or sick leave
    • Continued Group Health care benefits
    • Retirement payments
    • Severance
  • There is a provision for sole proprietors, Independent contractors, and other self-employed individuals; however, the basis for which this is calculated has not been made available yet. We expect to be able to publish additional information as it becomes available to us and lenders.  The SBA expects this application to be made available by April 10th, 2020 for self-employed individuals with no employees.
  • Payroll expenses in excess of $100k per employee is excluded from this calculation in determining the total eligible loan amount.
• DEBT FORGIVENESS PROVISION – the highlight of the CARE Act is the forgiveness of up to 100% of the PPP Loan so long as the proceeds were used for “covered expenses” (explained below)
  • Covered Expenses include:
    • Payroll costs (using same types of expenses mentioned above)
    • Interest on Mortgage obligations
    • Rent on enforceable lease agreement (must be pre-February 15th, 2020)
    • Utilities (Electric, gas, water, telephone, and internet)
    • Additional wages paid to “tipped employees”
  • The period for which these costs must be incurred to qualify must be between February 15th, 2020 and June 30th, 2020.
  • 75% of the forgiven amount must have been used for payroll
  • The portion of the debt forgiven is reduced if there is either:
    • A reduction in number of employees retained
    • A reduction in total wages paid that is greater than 25%
  • Reduction in employment or wages during the period of February 15th, 2020 through June 30th, 2020 will not reduce the amount of debt forgiven IF by June 30th, 2020, the borrower eliminates the reduction in employees or wages paid.
  • The repayment of these loans (for the portion not forgiven) will be deferred to six months after the loan origination.
• The application process is still being developed and will be available on the PPP Platform by the SBA by April 3rd, 2020 for those employers with employees.  The application and additional information is available HERE

 AMENDMENT TO ECONOMIC INJURY DISASTER LOAN (EIDL)

• CARES Act provides that SBA Disaster Loans will be available until December 31st, 2020 in amounts up to $2 million payable over 10 years at a rate that is less than 4%
• Proceeds must be used for working capital needs and ordinary expenses of the business.
• Personal guaranty requirement is waived
• Requirement to obtain credit from other sources is waived
• CARES Act provides for a $10,000 emergency advance (within three days of submitting the application) which will not be required to be repaid.
  • If the borrower also utilizes the PPP Loan, the amount of debt forgiven will be reduced by this $10,000 advance.
• You can apply online for the EIDL and $10,000 emergency advance HERE

 SBA DEBT RELIEF PROGRAM

• CARES Act provides immediate relief for small businesses with existing SBA 7(a) by covering all loan payments on existing SBA loans including principle, interest, and fees for six months
• PPP Loans and EIDL Loans are not eligible for this program
• This relief will apply to SBA 7(a) loans applied for and received within six months of enactment of the CARES Act.
• This also applies to 504 and micro loans from the SBA
• Debt relief is automatic – we advise clients to check with their lenders as soon as possible

 SBA EXPRESS BRIDGE LOANS

• CARES Act authorizes SBA Express Lenders to provide SBA-guaranteed bridge loan financing on an emergency basis of up to $25,000 to small businesses with an existing banking relationship with the lender.
• This loan will bridge the gap while applying for the EIDL loan (mentioned above) and will be repaid in full or in part by proceeds from the EIDL Loan once approved.
• Find more information about the SBA Bridge Loan HERE

 It is important to note that the eligibility requirements are changing rapidly as additional information about these programs is made available.  Before taking any action, we recommend consulting with your CPA and lender to determine which option makes the most sense for your business.  The loan amounts available are substantial, and with that, the consequences of not taking careful consideration before moving forward are high as well. 

These are unprecedented times, and we want you to know that we are here to assist you in any way we can to navigate the uncertainty.  Please contact your CPA directly at one of our offices for assistance or reach out to your local lender.

 Sincerely,

Raiche & Company, CPAs, PA