SBA COVID-19 Financial Relief for Small-Mid Size Businesses
The CARES Act signed by President Donald J Trump on March 27, 2020, provides approximately $2.2 trillion of fiscal stimulus, including a $350 billion bank loan program for businesses that are being operated by the Small Business Administration.
Businesses across most industries have been affected in one way or another. From being unable to keep staff employed to being unable to cover monthly expenses such as payroll.
Armed with an additional $350 million in its war chest, the SBA has rolled out three loan programs: the SBA Paycheck Protection Program, SBA Disaster Loans Program, and the SBA EIDL Cash Advance Program. These programs will provide loan guarantees of up to 100% of the loan amount to the bank and non-bank lenders for them to finance these COVID-19 Disaster Relief Loans to U.S for-profit Businesses affected by the COVID-19 pandemic.
Please read below on how either program Paycheck Protection Program, SBA Disaster Loans, Community Advantage or EIDL Cash
The advance could help your business today!
What is the SBA Paycheck Protection Program?
The SBA PPP is a program that will provide up to a 100% loan guarantee to the bank and non-bank lenders that finance U.S Business affected by the COVID-19 shutdown.
SBA PPP loans will help small businesses maintain payrolls and continue necessary payroll-related payments like rent and utilities. The full allowable uses of the loan are:
- Payroll costs: Compensation in the form of salaries, wages, commissions (or similar compensation), cash tip payments (or the equivalent)
- Healthcare costs: Any costs related to the continuation of group healthcare benefits, including insurance premiums
- Mortgage interest payments (but not payments on the mortgage principal)
Could companies use The SBA PPP Program?
For-Profit U.S based Businesses, including sole proprietors and independent contractors. Companies that have a min of one year in a business that was open as of February 1, 2020.
How Does the SBA PPP Loan Program work?
The SBA PPP Loan program will follow the same guidelines of the SBA 7(a) program to provide up to a 100% loan guarantee to a bank or non-bank lender that funds a business loan to a U.S Business.
The Cares Act allows for pared-down SBA requirements for PPP loans. For example, typically, the SBA would guarantee up to 85% of the loan to the bank or SBA Preferred Lender for most other SBA loan products. This is why SBA PPP loans are eligible to be forgiven, up to 100% of the loan principal. Under the SBA PPP Loan program, the allowed funded amounts would be for the lesser of either 2.5 average monthly payroll costs over the last trailing 12 mos of the application or $10mm. The goal of the SBA with the PPP Loan program is to assist anywhere from 8-10 weeks of a business’ payroll costs.
If a business manages to keep their staff employed, the loan may be entirely forgiven, converting it to a grant. If businesses are unable to keep their staff employed, businesses have to service the loan but will have payments for this deferred for the first year. Once a business provides the necessary paperwork required, the SBA expects to offer a swift response to companies in need. Further inquiries can be directed to the SBA’s PPP Loan Program FAQ page.
What are the benefits of the SBA PPP Loan Program?
Loan Proceeds may be used to pay certain business expenses, including payroll, employee benefits, rent, utilities, and interest on mortgage and debt obligations.
Fast turnaround time compared with most SBA loan products.
Loan amounts may be forgiven if they’re used to cover payroll costs, most mortgage interest, rent, and utility costs during eight weeks after the loan is granted.
The program will cover up to $100k per year in salary per employee.
Payroll Protection Program Forgiveness Explained
The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.
Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.
This loan has a maturity of 2 years and an interest rate of 1%.
If you wish to begin preparing your application, you can download a copy of the PPP borrower application form to see the information that will be requested from you when you apply with a lender.
SBA PPP Loan Eligibility Requirements
1. A registered for-profit business, operating legally.
Your business (or non-profit) was in operation as of February 15, 2020
2. As per the SBA 7(a) guidelines business must have fewer than 500 employees, and less than $7.5 million revenue on average each year for the past three years
3. Company is an independent contractor or sole proprietor, or the business/organization has either employees or independent contractors for whom they have associated payroll costs
4. Proof of payroll expenses for the trailing 12 mos of the date of the SBA PPP loan application.