Writer: Josh Chung
Given the current financial hardships that small business owners (including startups) are facing, the Small Business Association (SBA) has recently offered some new business loan options. Below are a few of the current potential business loan options:
**SBA – Paycheck Protection Program (PPP) under CARES Act
The PPP is designed to provide a direct incentive for small businesses to keep their workers on payroll. The SBA may forgive loans if all employees are kept on payroll for eight weeks and the money is used for payroll, rent, mortgage interest, utilities, healthcare benefit premiums, etc. Loan forgiveness is subject to additional conditions (i.e. retention of workers or salaries, more than 25% of PPP is not used for payroll, etc.). Eligible borrowers are small businesses with fewer than 500 employees, among others. No collateral or personal guarantees are required. Loan payments are deferred for six months, and no fees will be charged on these loans. Forgiveness may not be granted if full-time headcount declines or if salaries and wages decrease. In general, the loan will have a maturity of 2 years and an interest rate of 1% (possibly less).
The loan amount is calculated as 2.5 times the monthly average payroll (usually for 2019) up to a maximum of $10 million. Alternative baseline calculations may be applicable depending on the business situation. Payroll costs include wages (capped at $100,000 per employee), group health insurance, etc. but excludes employer Federal payroll taxes, wages that resulted in a tax credit under the Families First Coronavirus Response Act (discussed in prior post).
An employer who receives a loan under the PPP is NOT eligible to also claim an employee retention credit and payroll tax deferral under the CARES Act.
Both the PPP and EIDL CANNOT be taken for the same purpose or use of funds. Also, if an employer received the EIDL advance of $10,000, this amount will be reduced from the PPP loan amount that is forgiven.
In order to begin the application process, business owners would begin by contacting their banking institution where the business banking relationship has been established.
**SBA – Economic Injury Disaster Loan (EIDL) and Loan Advance
The EIDL is designed to provide vital economic support to small businesses to help overcome the temporary loss of revenue as a result of COVID-19. Eligible borrowers are small businesses with fewer than 500 employees, among others. Additionally, the SBA is providing an EIDL Advance of up to $10,000, within 3 days of successful application and this loan advance will not need to be repaid.
Both the PPP and EIDL CANNOT be taken for the same purpose or use of funds.
In order to begin the application process, business owners should begin the online application process on the SBA website.
**SBA Express Bridge Loans
Small businesses who currently have a business relationship with an SBA Express Lender may have access to up to $25,000 with less paperwork. These loans can be term loans or bridge loans while applying for the SBA EIDL loan above.
*NOTE: SBA Affiliation Rules*
SBA treats affiliation as when one business controls or has the power to control another or when a third party (or parties) controls or has the power to control both businesses. Control may arise through ownership, management, or other relationship or interactions between the parties. This includes but is not limited to: common management of multiple businesses, control of 50% or more of voting stock, convertible equity situations, etc. Owners of multiple businesses may need to consider their other businesses when applying for SBA Disaster loans. In addition, nonresident aliens/foreign owned entities may not qualify for SBA loans.
***JC & Associates*** is here to help. For more information on how we can assist you or your business, please contact:
Elisa Lee, CPA (Director)
(213) 760-2309
elisa.lee@jcandassoc.com
jcandassoc.com