SBA loan options for small businesses through the CARES Act
With the passage of the 3rd stimulus bill by Congress, Friday afternoon, there have been significant changes to the process and options to acquire loans for small businesses due to COVD-19. The changes, in general, are loosening up requirements to acquire a loan, loan eligibility including a larger audience, increase flexibility to acquire cash quicker, involving SBA approved banks to issue loans and loan forgiveness capabilities. Here are some highlights on the SBA loan options for small businesses through the CARES Act.
We have not received any update from the SBA of the details of these changes yet and may not for a few days. I will make my attempt to provide you an overview so you can talk about this with some understanding sooner than later. Again, there may still be many more changes coming and though this information may be directional accurate there might be some inaccuracies.
We are providing advice on the options available to the small business and trying to get them to apply for a loan ASAP. They need to work with their accountant, lawyer, partners, or themselves to determine the best option for their business. We are only providing guidelines for them.
There are now two options for a small business to acquire a loan due to COVD-19. The first option is the Economic Injury Disaster Loan EIDL and the second option is the” Payroll Protection Program“. Below are some changes that are applicable to both loan options:
· No Fees to apply for either loan
· Loans are for the sole purpose to cover payroll support (including paid sick or medical leave), employee salaries, mortgage payments, insurance premiums and any other debt obligations
· No prepayment penalties
· Very loose requirements for loan approval. Focus is on speed to get the loans issued
NOTE: An applicant may receive an EIDL Loan and loans under other programs (such as the Paycheck Protection Program described below) as long as the basis for the loans/costs being paid with each is different (no “double-dipping”).
EIDL Loan
· Loans up to $2M
· Loans directly from the SBA
· Application is filed with the SBA
· 3.75% interest for Small Business, 2.75% for Non-profits
· 30-year term of loan
· Payments deferred for 1 year
· Small Business, Non-Profits, and Independent Contractors are eligible for this Loan. Adding Independent Contractors is a significant change.
· Emergency EIDL Grants –An emergency grant to allow an eligible business that has applied for an EIDL loan to request an advance on that loan of no more than $10,000 which the SBA must distribute within three days. Whether accepted or not by the SBA this amount does not need to be repaid by the company. SBA has indicated that this option will not be available on the application forms till the middle to end of this upcoming week
· Unsure if the SBA Express Bridge Loans are applicable any longer – Provided up to $25K of monies until EIDL loan was received
· Collateral now needed only on loans over $200K
· Paperwork (I need to confirm this with local SBA) required to file these loans as of the SBA website on March 29, 2020, are:
§ Business Loan Application (Form 5)
§ Home or Sole Proprietor Loan Application (SBA Form 5C)
§ Economic Injury Disaster Loan Supporting Information (Form P-019)
· Additional Forms
An SBA loan officer may request the following additional forms:
§ Fee Disclosure Form and Compensation Agreement (Form 159D)
§ Personal Financial Statement (SBA Form 413D)
§ Request for Transcript of Tax Return (IRS Form 4506-T)
§ Instructions for Request for Transcript of Tax Return (IRS Form 4506-T)
§ Schedule of Liabilities (SBA Form 2202)
§ Instructions for Schedule of Liabilities (SBA Form 2202)
§ Schedule of Liabilities (SBA Form 2202)
§ Additional Filing Requirements (SBA Form 1368)
§ Additional Filing Requirements (SBA Form 413D)
New guidelines to submit these loans to SBA
· Download and print off of the SBA site forms since the online system seems to have its challenges
· Fill in your information on the paper forms
· Upload forms on the SBA site or mail, fax or email to the SBA
Payroll Protection Program – SBA 7(A) Loan Program (Supersized)
· Loans up to $10M
· Loans are with SBA approved banks
· Application is filed with the local SBA approved bank
· 10-year term of the loan
· 4% interest
· No collateral needed
· Payments deferred for 6 months to 1 year
· Nonprofits, Small Businesses, and Independent Contractors qualify for this program
· Loan Forgiveness – Provides a process by which borrowers would be eligible for loan forgiveness in an amount equal to the amount spent by the borrower during an eight-week period after the origination date of the loan on their actual operating costs during that time period. The amount forgiven would be reduced in proportion to any reduction in employees retained compared to the prior year and to the reduction in pay of any employee beyond 25% of her prior-year compensation.
· Loan application details will be based on the SBA approved bank
· SBA is guaranteeing 100% of the loan. No risk to the bank and no cost to the Bank to the SBA
Lastly, the employment benefits have been greatly enhanced in regards to payments to the individual and who can qualify for unemployment. We really should not be talking about unemployment benefits since this is not a business solution but an individual option. There is one thing I wanted to point out on this change. An independent contractor can now file for unemployment even if they were not employed by a company. Another option instead of the loan programs for them to consider if you happen to be talking to this type of individual.
Apple Capital Group, Inc., is a division of Apple Community Development Corporation. Apple CDC is a nonprofit community development organization that specializes in providing technical assistant and access to capital to startups, small businesses, and nonprofit organizations nationwide.
https://www.applecapitalgroup.com/disaster-assistance-loans/
