On Friday afternoon the President signed Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. As we discussed in our last update, this expands unemployment benefits and creates several SBA loan programs. Applying for these loans will be important, as well as the strategy of when to apply. With this being said, while we are still waiting on several technical aspects (such as the actual application itself), below you will find important information for you and your practice –
SBA LOAN OPTIONS:
Introduction
As we originally discussed, the CARES Act addresses programs offered by the Small Business Association. There are two programs that will be beneficial during this time:
1. Paycheck Protection Program (PPP) - This is new program
2. Emergency Economic Injury Disaster Loan (EIDL) - This is an expansion of an existing program
What is the Difference?
There are a few nuances between the programs, but from a high-level standpoint it is important to note the following:
1. Paycheck Protection Program (PPP)
· Eligible for loan forgiveness on amounts spent during an 8-week period on qualifying costs
· Allowable use include payroll, rent, mortgage payments and utility costs
· An amount is forgiven if a certain number of employees are retained or re-hired within a specified amount of time, otherwise loans will have a maximum maturity of 10 years and an interest rate not to exceed 4%
2. SBA Emergency Economic Injury Disaster (EIDL)
· $10k will be forgiveness, with remainder treated as low interest loan
· Allowable use includes small business operating costs
· Allows business that have applied for a disaster loan to get an immediate advance of $10k (most likely 3-5 days after loan application)
What is best for my practice?
While both programs have their time and place, our recommendation is that the Paycheck Protection Program (PPP) will be the most advantageous during this time as in most cases it is eligible for a large amount of loan forgiveness.
You can apply for both loans but proceeds from the EIDL will reduce the amount that will qualify for with the PPP loan. If you have other cash reserves to be utilized at this time, applying for this loan is most likely not necessary. (From a big picture, you cannot “double dip”)
HOW TO APPLY:
Since these programs were signed into law on Friday, the finalized applications are not yet available. It is anticipated that they will be available by the end of the week.
· Fine print, since the EIDL loan is an expansion program, you will see an application on the SBA website. This application is believed to be much more in-depth than we expect the finalized application to be as it requests significant personal information. The original program required a personal guarantee (which is why significant personal information is requested), but the expanded program will not.
· The SBA program is a government program; however, it is administered by local and regional banks. Therefore, you will be working with a regional or local banker during the application process.
· It is likely in your best interest to reach out to your local banker to determine if they offer SBA programs so you can continue to work with someone you have an existing relationship with, otherwise the SBA website will show you others who offer these programs.
· In the meantime, as we discussed before, the best thing to do is to make sure you have access to the items you will need during the application process.
WHY IS TIMING IMPORTANT?
Regarding the PPP loan, 8 weeks of qualified expenses will be forgiven. This 8-week period starts when you receive the loan proceeds. Since this is the case, the timing of when you receive the funds is important. It will be beneficial to receive the loan proceeds when you are able to open your doors again and start bringing your staff back to work.
Example: If you receive the loan proceeds on April 1st, but you cannot open your doors until May 1st, than you will have 4 weeks of funds sitting idle (as your expenses will be much lower during this time). However, if you wait to take hold of your proceeds until May 1st, then you will have 8 weeks of funds to be used while the business is getting back up to speed.
Fine print: Since the application is not yet finalized, it is unclear if you can apply now and designate you would like to receive the funds at date in the future OR if you will need to wait to apply until you are ready to receive the funds. Unfortunately, this is not something we will know until later in the week when the applications are ready. This is why it will be important to gather information now so that you can apply when you are ready to do so.
We understand that there is a significant amount of information coming from a number of different directions so we are happy to speak to you about your specific situation to determine what the best fit will be.