Editor's Note: This article previously appeared on the Ontario Systems Blog and is republished here with permission.
The insideARM COVID-19 Impact resources page contains all of the latest news as well as official state notices and other information to help your company navigate these uncertain waters.
Last week on the OS blog, we shared highlights from our first COVID-19 webinar, which focused on state collection restrictions and managing FDCPA compliance during this national crisis. (You can download the free webinar recording here.)
This week’s webinar, “SBA: What You Need to Know Now,” centered on the Coronavirus Aid Relief and Economic Security (CARES) Act, its impact on Small Business Administration (SBA) lending, and what you can do to get the vital assistance you need.
Joining us this week was Taft Law Partner Kiamesha Colom, whose specialties include government lending and commercial finance. Kiamesha shared detailed information related to the three “buckets” of Title I of the CARES Act:
- Modifications to SBA 7(a) and 504 loans including microloans
- Modifications to the SBA’s disaster loan program
- The Paycheck Protection Program (PPP)
To date, 280,000 loans have already been approved under the CARES Act. If you plan to apply in the near future, or you’re wondering how the CARES Act impacts your existing SBA loans, the following list is a good starting point. I also encourage you to download a free recording of this week’s webinar for additional details and tips.
And, as always, be sure to consult your attorney for legal advice.
Here are 10 essential insights and tips that explain what the CARES Act offers and what it means for you.
1. If you currently have a 7(a) or express loan, you can defer payments up to six months.
The SBA is currently in contact with lenders and will automatically cover six months’ worth of payments (both principal interest and associated costs). If you choose to keep making payments on your loan, the SBA payments will be applied to the principal.
2. The cap for express loans has increased from $350,000 to $1 million.
If you need a bridge loan and need a relatively quick disbursement of funds, and you plan to use the proceeds as you would for a 7(a) loan, you can now apply for an express loan of up to $1 million.
3. Before applying for a disaster loan, do your homework.
A disaster loan (currently a 30-year term at 3.75% interest) can be used for essentially any business need that normal business revenues would have covered. You should NOT use this type of loan for payroll, however. If you do, you’ll have to refinance your disaster loan as a PPP loan.
Take a look at the disaster business loan application in advance so you can gather supporting materials. To complete the application, you’ll need financial and tax information, schedules, liabilities, personal information, and more (you can find the filing requirements on page 3). Because all 50 states and six U.S. territories have declared emergencies due to the COVID-19 pandemic, you can simply list “COVID-19” on the application.
4. Eligibility for disaster loans has been expanded.
Under the CARES Act, businesses with 500 employees or fewer—including sole proprietors, independent contractors, all private nonprofits, and tribal businesses—now qualify for disaster loans.
NOTE: If you’ve ever defaulted on an SBA loan or gone bankrupt on one, you won’t be eligible. If someone with 20%+ ownership of your company has had a felony conviction within the past 7 years, you may not be eligible.
5. You can get up to $200,000 in disaster loan funds without the need for collateral.
The highest disaster loan amount you can get without needing a personal guarantee (collateral) has increased under the CARES Act from $25,000 to $200,000. The size of your loan will be based on the SBA’s determination of your ability to repay, and you can defer loan payments up to 12 months.
6. The first $10,000 of an economic disaster investment loan is yours to keep.
On the disaster loan application, there’s a box you’ll need to check to be considered for an economic disaster investment loan. If you’re approved for the latter, you’ll receive a $10,000 grant you won’t need to repay—even if you’re denied a disaster loan. If the disaster loan is approved, that $10,000 is rolled into the disaster loan.
NOTE: The SBA should issue a verdict within 21-30 days, but they might email you sooner for additional information. Make sure you respond within 5 days, or your application will be put on hold. Be sure to whitelist any email addresses that end in sba.gov.
7. For the Paycheck Protection Program, you must act quickly.
The PPP is a first-come, first-serve program with $100 billion in funds already allocated and $249 billion unallocated. If you need to apply, time is of the essence. Secretary Mnuchin asked Congress to approve another $200 billion for this program, but on Thursday, April 9, the Senate failed to pass additional funding for small businesses.
Currently, PPP loans (2-year term at 1% interest) have no prepayment penalty. The maximum amount you can borrow is either $10 million or 2.5 times your average monthly payroll costs for the preceding 12 months—whichever amount is lower. To calculate your loan amount, your bank might just look at your tax returns for the prior year.
NOTE: Many banks won’t consider a PPP loan without an existing business relationship or have additional eligibility requirements for borrowers (e.g., fewer than 50 employees). Your bank might also be unwilling to pay for an agent to help you complete your application. Be sure to ask these questions upfront.
8. If you have 500+ employees, you may still be eligible for a PPP loan.
If you don’t fit into the PPP size standard in terms of headcount, check your NIACC code (Title 13, section 121). You may meet the revenue size standard under the code of federal regulations for your industry.
NOTE: Under the CARES Act, affiliation rules still apply (with certain exemptions). If the applicant, company, owners, or managers have management control over other businesses, those other businesses are considered affiliates. If the combined total for all affiliates exceeds 500, a PPP loan may not be available.
9. Anticipate delays.
The SBA is working around the clock and doing its best to process loan applications and disburse funds quickly, but these are trying times. The agency is very backlogged. In a normal year, about $25 billion in loans run through the SBA. In contrast, the U.S. Dept of Treasury has asked the SBA to process 10 times that amount within 30 days.
10. New guidance is being issued almost daily.
As Kiamesha mentioned during the webinar, SBA officials say they’re “building the plane while also flying in it.” Guidelines surrounding the CARES Act are constantly evolving. Make sure you’re staying on top of new guidelines as they’re issued. You can find the latest updates online at U.S. Department of the Treasury: Assistance for Small Businesses.
Tune Into Our SBA Webinar—and Stay Tuned for More
Above is just some of what we covered in this week’s webinar, “SBA: What You Need to Know Now.” For more information about the CARES Act, additional caveats, tips for completing a borrower application, and much more, download the free webinar recording here.
For our third weekly COVID-19 webinar, “Voices from the Trenches: How Leaders Are Leading During the Crisis,” we’ll be hosting three ARM industry leaders who will discuss how they’ve retooled their operations to meet present-day challenges. We’ll be taking lots of questions, so we hope you’ll join in and be part of the discussion. Register today to save your seat or get the replay sent straight to your inbox.