As noted in our “Open Letter to Business Owners,” this too shall pass. But it may not pass without a little help. There are several options now available to assist small businesses in weathering the COVID-19 storm, which options are outlined below. We recommend you contact a professional or review the actual lending programs to become fully-educated on their respective terms and conditions. To that end, we are providing this summary to assist you in evaluating your options, preparing for the application process, and to provide you a head start as the funding of these programs is not unlimited and will be made available on a first-come, first-served basis. In other words, time is of the essence.
Paycheck Protection Program
On Friday, March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act is a far-reaching effort to provide stimulus to the U.S. economy and is valued at more than $2 trillion. The CARES Act includes the Paycheck Protection Program that offers a very important opportunity for small businesses to fund their payroll and other necessary expenses in the form of a loan that can be completely forgivable. There are many components to the PPP and some of the more important and unique features include the following:
- Application Deadline: June 30, 2020, but applications are scheduled to be accepted starting April 3, 2020
- Eligibility: Companies (including 501(c)(3)) with no more than 500 employees as well as sole proprietors, the self-employed, and independent contractors who were in operation on or before February 15, 2020
- Lender: Private banks approved by the Small Business Administration (“SBA”).
- Use: Payroll, group health benefits, salary and employee commissions, interest on mortgages, rent, utilities, and interest on debt incurred before February 15, 2020
- Maximum Loan Amount: The amount of any loan is equal to 2.5 times the average monthly “payroll costs” for the preceding 12 months multiplied. Newer and seasonal businesses may look at shorter periods. When calculating payroll costs, compensation is capped at $100,000 per employee.
- Forgiveness: The loan may be forgiven after 1 year if proceeds deployed solely for the permitted uses and at least 75% of the proceeds are used for payroll. Any amounts spent on other uses will not be forgiven. The amount of the loan that is forgiven will be equal to the amount spent by the borrower during an 8-week period after the origination date of the loan on payroll costs, interest payment on any mortgage, rent, utilities, or other interest. The amount of the loan that is forgiven will also depend on whether the borrower’s payroll or the number of employees was reduced during the 8-week period by more than 25%. The amount forgiven will also be reduced by the amount of any grant received in connection with the EIDL program detailed below.
- Term: No payments will be due for 1 year, but if any portion of the loan is not forgiven, it will be payable over 2 years
- Rate: 1.0% interest.
- Personal Guaranty: None
- Collateral: None
- Forgiveness of Debt Income: None
It is not yet clear when the loans will be funded, but the application process is scheduled to open up on Friday, April 3, 2020. A preliminary application is available on the SBA website.
Economic Injury Disaster Loans and Loan Advance
The Small Business Administration has made Economic Injury Disaster Loans (“EIDL”) available for the COVID-19 pandemic as well as a $10,000 forgivable loan advance. The relevant features of EIDLs include the following:
- Application Deadline: December 18, 2020
- Eligibility: Companies and with not more than 500 employees, including cooperatives, ESOP’s, and nonprofit organizations, sole proprietors, the self-employed and independent contractors
- Lender: SBA
- Use: Pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.
- Maximum Loan Amount: $2,000,000
- Forgiveness: An advance of $10,000 will be provided as a grant within three days of application and is not required to be repaid if loan denied
- Term: Up to 30 years but will be determined on a case-by-case basis
- Rate: 3.75% for for-profit businesses and 2.75% for non-profit businesses
- Personal Guaranty: Yes, if the loan exceeds $200,000
- Collateral: Yes, if the loan exceeds $25,000
- Forgiveness of Debt Income: None
The EIDL program is not new to the SBA, but the underwriting requirements have been relaxed to ensure that businesses are able to benefit from the program. If you have already applied for or received an EIDL, you may be eligible to roll it into a PPP loan to take advantage of the forgiveness provisions of the PPP.
The Florida Small Business Emergency Bridge Loan Program
The Governor of Florida enacted the Florida Small Business Emergency Bridge Loan Program in response to the COVID-19 pandemic. Through this program operated by the Florida Department of Economic Opportunity certain small business owners may be able to obtain short-term, partially-interest free loans to address funding needs while they secure longer-term recovery resources.
- Application Deadline: May 8, 2020
- Eligibility: For-profit businesses operating in Florida on before March 9, 2020, with between 2 and 100 employees, and who are able to demonstrate economic injury
- Lender: State of Florida
- Use: A borrower will be required to sign an agreement that the loan proceeds will be used only for purposes of maintaining or restarting the business in the designated area. Use of proceeds to pay off debts already incurred for qualifying business maintenance or restart purposes may be authorized on a case-by-case basis.
- Maximum Loan Amount: $50,000
- Forgiveness: None
- Term: No payments will be due for 1 year, but if any portion of the loan is not forgiven, it will be payable over 1 year
- Rate: 12%
- Personal Guaranty: The borrower is the individual or individuals who own at least 51% of the business
- Collateral: None
- Forgiveness of Debt Income: None
Other Options
There are other options available to small businesses including a new SBA Express Bridge Loan Pilot Program designed to provide $25,000 in express funding to businesses to meet immediate needs while applying for, and awaiting approval of, an EIDL. Only applicants to the EIDL program are eligible to participate in the Pilot Program. The SBA is also even paying for a limited period of time the monthly payments due on its traditional (non-disaster) Section 7(a) small business loans.
For more information, please contact us at info@mrtlaw.com or at 305.670.5000.
UPDATED: 4/7/20
Markowitz Ringel Trusty + Hartog concentrates on the representation of businesses, institutions, fiduciaries, and individuals across several practice groups, which include Restructuring + Insolvency, Litigation + Dispute Resolution, Real Estate + Business, Probate + Guardianship, and Trusts + Estates. Dedication to clients and service to the community are the principles upon which Markowitz Ringel Trusty + Hartog was founded in 1980, and upon which it still operates today.