Equiturn has been assisting small businesses to apply for Cares Act loans and develop an individual strategy to get through these turbulent times. As many may have heard on Wednesday, the Senate unanimously passed the Corona Aid, Relief and Economic Security (Cares) Act, which will provide over two trillion dollars in aid to the economy. Our team of experts at Equiturn has summarized the package and provided the key facts below. We are waiting for the ratification in the House so we can make sure our partners are able to take advantage of the wide variety of aid being offered by the government to small businesses. Reach out to our team if your business needs assistance in getting the most possible from this coming stimulus package.
DIRECT PAYMENTS TO CITIZENS
Individual Americans will each get $1,200, couples will get $2,400 and $500 for each child under the age of 17.
Payments begin to phase out if the individual made over $75,000 last year and no payments are available to those who made over $99,000 last fiscal year.
Payments are expected to go out by April 6
EXPANDED UNEMPLOYMENT BENEFITS
The Department of Labor is awarded over 360 million to invest in programs that provide training and supportive services for dislocated workers, seniors, migrant farmworkers and homeless veterans. Includes funding for implementing new paid leave and unemployment insurance benefits.
Unemployment benefits are expanded from three to four months and will now provide temporary unemployment compensation of $600 per week, which is in addition to and the same time as regular state and federal unemployment benefits.
Part-time, self-employed and gig economy workers now have access to unemployment benefits
Employers will receive an advance tax credit from the Treasury instead of having to be reimbursed on the back end.
$260 billion investment into the unemployment insurance program.
Creates regulatory authority to implement the tax credit advances.
Emergency Relief and Tax Payer Protections
The Secretary of the Treasury is awarded $500 billion to make loans, guarantee loans and provide other investments to eligible businesses, states, and municipalities.
Eligible businesses will include businesses impacted by the COVID-19 epidemic including businesses with under 100 employees and non-profit organizations.
LABOR RELATED PROVISIONS
The Small Business Administration (SBA) is awarded $10 billion to award emergency grants of up to $10,000 to provide immediate relief for operating costs.
This will apply to businesses that have been severely impacted and need funds immediately to make payroll, rent or pay other debt.
The maximum 7(a) loan amount is up to $10 million through December 31, 2020, and will be based on a formula by which the loan amount is tied to payroll costs incurred by the business to determine the size of the loan.
Increases the government guarantee of loans made for the Payment Protection Program under section 7(a) of the Small Business Act to 100 percent through December 31, 2020
Lenders are provided delegated authority, which is the ability to make determinations on borrower eligibility and creditworthiness without going through all of SBA’s channels, to all current 7(a) lenders who make these loans to small businesses, and provides that same authority to lenders who join the program and make these loans.
Interest rates for SBA 7A loans are capped at MAXIMUM 4%
Collateral and Personal Guarantee requirements for SBA 7A loans are waived.
Borrowers are not to be charged any prepayment fees.
Government guarantee of 7(a) loans are increased to 100 percent through December 31, 2020, at which point guarantee percentages will return to 75 percent for loans exceeding $150,000 and 85 percent for loans equal to or less than $150,000.
Complete deferment of 7(a) loan payments for at least six months and not more than a year is allowed. The SBA is required to disseminate guidance to lenders on this deferment process within 30 days
For eligibility purposes, lenders are required to, instead of determining repayment ability, which is not possible during this crisis, to determine whether a business was operational on February 15, 2020, and had employees for whom it paid salaries and payroll taxes, or a paid independent contractor.
The SBA is awarded another $17 billion in order to cover up to 6 months worth of payments for businesses with existing SBA loans.
Establishes that the borrowers shall be eligible for loan forgiveness 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 incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020
Rent, mortgage and utility costs now eligible for SBA loan forgiveness.
Includes sole-proprietors, independent contractors, and other self-employed individuals as eligible for loans.
Businesses with more than one physical location that employ no more than 500 employees per physical location in certain industries are eligible and businesses below a gross annual receipts threshold in certain industries are eligible.
Canceled indebtedness resulting from this section will not be included in the borrower’s taxable income
The U.S. Department of Treasury is providing an avenue for additional lenders to be approved as SBA approved lenders to help keep workers paid and employed. Additional lenders approved by Treasury are only permitted to make Paycheck Protection Program loans, not regular 7(a) loans.
Fees for both borrowers and lenders for participation in the Paycheck Protection Program are waived.
Economic Injury Disaster Loan
EIDL Loans are available to small businesses in a declared disaster area (all 50 states, Puerto Rico, Guam and the North Mariana Islands have all been declared disaster areas for purposes of the EIDL Program effective January 31, 2020) to cover economic injury resulting from the disaster (e.g., loss of revenue).
EIDL Loans are processed directly through the SBA, although the SBA may determine to enlist the assistance of lenders for the processing and making of loans.
EIDL Loans are available in a maximum amount of $2 million, carry an interest rate of 3.75 percent and have a maximum term of 30 years.
Loans over $200,000 must be guaranteed by any owner having a 20 percent or greater interest in the applicant (the CARES Act removed the requirement for personal guarantees on loans under $200,000).
The CARES Act also removed standard EIDL Program requirements that the borrower not be able to secure credit elsewhere or that the borrower have been in business for at least one year, as long as it was in operation on January 31, 2020.
Applicant may request an expedited disbursement that is to be paid within three days of the request. The advance may not exceed $10,000 and must be used for authorized costs but is otherwise not repayable if the EIDL Loan is not approved.
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 are different (no "double-dipping")
On Wednesday, the Senate unanimously passed the Corona Aid, Relief and Economic Security (Cares) Act, which will provide over two trillion dollars in aid to the economy. Our team of experts at Equiturn ha summarized the package and provided the key facts below. We are waiting for the ratification in the House so we can make sure our partners are able to take advantage of the wide variety of aid being offered by the government to small businesses.
Does not have more than 500 employees or the maximum number of employees specified in the current SBA size standards, whichever is greater; or
If the business has more than one location and has more than 500 employees, does not have more than 500 employees at any one location and the business' primary NAICS code starts with "72" (Accommodation and Food Service); or
Is a franchisee holding a franchise listed on the SBA's registry of approved franchise agreements; or
Has received financing from a Small Business Investment Corporation.
Maximum interest rate of 4 percent per annum.
Loans are made by SBA-approved lenders that have delegated authority to make the loans without approval from the SBA (no SBA Authorization required for each individual loan). This should help expedite the application and closing process.
In reviewing the application, a lender has to evaluate whether the borrower was in business on February 15, 2020 and had employees and paid salaries and taxes or had independent contractors and filed 1099-MISC for them.
Guarantee fees are waived (these are typically 2 percent-3.75 percent of the loan amount, depending on the size of the loan, and would otherwise be paid by the borrower).
Loans are non-recourse to the borrower. In addition to waiving any guaranty that might otherwise be required by the Small Business Act, the CARES Act specifically provides each loan is nonrecourse to the shareholders, members and partners of the borrower.
No "credit elsewhere test." That is, the borrower does not have to demonstrate it was unable to secure financing elsewhere before qualifying for SBA financing.
No collateral requirement.
No prepayment penalties.
Payments are deferred for six to 12 months.
The applicant is required to certify:
Current uncertain economic times make the loan request necessary to support ongoing operations; and
Funds will be used to keep workers and make payroll, mortgage payments, lease payments and utility payments; and
Applicant does not already have an application pending for other payroll assistance under the CARES Act.
Loan Forgiveness Provisions
Under the CARES Act, small business loan borrowers will be eligible for loan forgiveness, both for new loans under the Paycheck Protection Program and for existing 7(a) loans.
For borrowers under the Paycheck Protection Program, the loan forgiveness will equal the amount spent by the borrower in the eight-week period after the loan origination date on the following items (not to exceed the original principal amount of the loan):
payroll costs (not to exceed $100,000 of annualized compensation per employee); and
payments of interest on any mortgage loan incurred prior to February 15, 2020; and
payment of rent on any lease in force prior to February 15, 2020; and
payment on any utility for which service began before February 15, 2020.
**The amount forgiven is not considered taxable income to the borrower. **The amount forgiven will be reduced proportionally by any reduction in the number of employees retained as compared to the prior year. **The proportional reduction in loan forgiveness also applies to reductions in the pay of any employee where the pay reduction exceeds 25 percent of the employee's prior year compensation. ** A borrower will not be penalized by a reduction in the amount forgiven for termination of an employee made between February 15, 2020 and April 26, 2020, as long as the employee is rehired by June 30, 2020. **Any amount outstanding after considering the amount forgiven will be repayable over a term not to exceed 10 year
The CARES Act is set to be ratified today by the House of Representatives and is designed to go into effect almost immediately. Our team at Equiturn is closely monitoring for any updates in relation to the stimulus package and will be providing updated emails as they come. We look forward to offering our partners the guidance to navigate these uncertain times and ensure that our clients are taking advantage of every opportunity possible. Please reach out to a member of our team to schedule a time to develop a potential strategy for your business.
Joshua Orlinsky Managing Partner
jorlinsky@equiturnsolutions.com Ron Krudo Managing Partner rkrudo@equiturnsoltuons.com Michael Masson Senior Account Manager mmasson@equiturnsolutions.com
CDC and WHO Resources
Equiturn encourages you to monitor the information provided by the Centers for Disease Control and Prevention (CDC) and World Health Organization (WHO) for the ongoing safety of you and your family.