Right now, your highest priority is your health and that of your loved ones, and we wish that all of you stay healthy and safe. But we realize that your next biggest concern may be where money is going to come from to pay your expenses during this pandemic. This is especially true if you own a business and feel the responsibility of making sure your employees can pay their bills is just as important as you paying your own.
Over the past few weeks we have been sending out information to help you understand the resources available from the federal and state governments. I’m sure many of your heads are spinning by now with all the information out there!
If you are not sure where to start or are struggling to understand which programs are best suited for your business, we are here to help you make these decisions…
As a firm that works extensively with small businesses and nonprofits, we completely understand the major short-term impact COVID-19 has already had on business operations. We also realize there is potential for it to be crippling for your business in the long-term if actions aren’t taken immediately to help businesses ramp up quickly after this crisis is over.
On March 27, the President signed phase 3 of the COVID-19 crisis bills, dubbed the “CARES” Act. Although this bill contains a wide range of provisions, many of which we will cover in subsequent communications, we found the following part of the bill to be of highest and immediate importance.
Paycheck Protection Program (PPP)
The program was created to provide cash-flow assistance through 100% federally-guaranteed loans to employers who maintain their payroll during this emergency. If employers meet certain criteria for maintaining payroll, the loans will be partially or fully forgiven. The best part is this loan forgiveness is not considered income. Although we have some guidance on what defines payroll, there are still unanswered questions surrounding the definition. Thus, due to some of these unanswered questions, we are urging companies to immediately contact your bank to discuss the application process, and to proceed with caution before closing on a loan. The company will bear the burden of proving the loan is “forgivable” so be sure that the costs you are claiming are eligible costs if you’re not prepared to repay the loan.
Although there are lots of unanswered questions, there is plenty that we do know. Here are a few answers to commonly asked questions:
- How much will I be eligible for?
- 250% of your average payroll costs from February 15-June 30, 2019 (employees capped at 100k)
- If you’re a new business, use your payroll from January-February 2020
- For self-employed – Use your net earnings from self-employment (capped at $100k annually)
- What can I use the loan proceeds for?
- Payroll and certain related benefits, rent, utilities, and interest on debt obligations
- Where do I apply?
- Through your local SBA lender. (As of the date of this writing these applications are not available as lenders are awaiting additional guidance from SBA.)
- What can I do now?
- Contact your local SBA lender and start gathering financial statements and payroll information for your business.
- How does the debt forgiveness work?
- Forgiveness will be based on the sum of the items in B (above) for the 8-week period compared to the previous time period proportionate to maintaining employees and wages.
- Your lender will determine your forgiveness and will request verification documentation.
We have templates setup to assist with this calculation and would be happy to help you with the calculations.
What if PPP isn’t enough or you don’t qualify for it? There is another option…
Economic Injury Disaster Loan (EIDL)
Created under the first of the three bills that were passed in response to the COVID-19 pandemic, these loans are available directly through the Small Business Administration (SBA). These are strictly for working capital of up to $2 million to overcome the temporary loss of revenue. These loans must be repaid and charge interest at 3.75% to for profit businesses or 2.75% to nonprofit organizations. However, they can be refinanced into a PPP loan. In addition, there is a $10,000 emergency advance that is available to businesses within three days of application. Under no circumstance must the $10,000 be repaid, even if you’re not approved for the loan! The emergency advance may be used for regular operational business expenses. Also, it appears that you can have both a PPP loan and an EIDL loan so long as they are not used to cover the same expenses.
The drawback to this loan is that if you need more than $25,000, the SBA wants information on available collateral and personal guarantees. In addition, the time from application to funding is generally three weeks or more.
We realize these are difficult times and there is a lot of questions and confusion around these options. If you need help, or simply have questions about your specific situation, don’t hesitate to reach out to us. We are happy to help!