CARES Act - Small Business Loan Info

Urgent: Apply Now for SBA's Paycheck Protection Program (PPP)!

As part of the CARES (Coronavirus Aid, Relief, and Economic Security) Act, the US federal government has appropriated $349 billion in Small Business Administration loans—available to businesses like bicycle retailers and suppliers through their banks—to be used for operating expenses like payroll, rent and utilities. These loans are meant to help you immediately and in the coming months and will likely be forgiven. But you must ACT NOW before they’re gone.

 

Getting Started

Q: Why is it a big deal?
A:  If used for qualified expenses and in the time frame specified, the loan can be forgiven. Normally forgiven debt is considered taxable income, but the CARES Act has specially outlined it would not be considered taxable.

Q: What businesses qualify?
A: U.S. Small businesses with fewer than 500 employees, sole proprietors & independent contractors and non-profits- 501(c)(3). Business must have been in operation on February 15, 2020.

Q: How do I apply?
A: Call your bank NOW! Tell them you are interested in applying for an SBA paycheck protection loan and want to know the next steps and what they require. If they tell you they are not accepting applications yet and you have a relationship with another bank, call them immediately.

It’s crucial that you apply immediately, because many banks are expecting for funding to be used up in the first week.

Q: When does the bank start accepting applications?
A:  Immediately! The program was official starting April 3. Banks were supposed to start accepting applications on that day. However, many banks were not ready to start accepting applications. Several banks are limiting their first applications to businesses with 1-2 owners. This is all good news for those who were not ready to apply on April 3.

Q: How long will the program remain open?
A: Currently it is set to expire on June 30, 2020 even though that could be extended. However, funding will not be available for long since it's a popular program. Many banks are expecting for funding to be used up in the first week.

Q: What information do I need to have ready to apply for the loan?
A: You will need payroll data, number of employees, rent and utility expenses by month. Here are some examples of information we have been seeing some banks request:

  • Quarterly 941 tax returns for 2019 and Q1 2020
    • Payroll cost report by month for April 2019 – March 2020. Some banks have been asking for calendar year 2019 as well. Be ready for that.
    • This includes salaries, bonuses, retirement, health insurance.
    • 2019 Financial Statements- profit and loss and balance sheet
    • Most recent tax return filed
    • Accurate count of employees on payroll as of latest pay period. Do not include independent contractors unless the bank asks for that info.

Q: I don't have some of this information. Can I still apply?
A: Many banks are making it as easy as possible to get these loans administered. Let the bank know what you have available and get familiar with their process. Some are accepting paper applications and some are creating a portal you can use.

Q: How much is the loan for and how is it calculated?
A: The loan is calculated at 2.5 times a business' average monthly payroll costs up to a max of $10,000,000. This is why you will want your payroll costs by month. If you weren't in business for the entire 2019 year, use the latest 12 months. If you haven't been in business for more than 12 months, you are not necessarily disqualified. You do, however, need to have been in business as of February 15, 2020.

Q: Where can I find the paper application?
A: It's located on the Department of Treasury's site. However, before completing it, call the bank and see if they are taking the paper application or are using a portal online to accept.

Q: What is the anticipated time frame to receive a loan?
A: Banks are expected to issue the funding very soon after processing the applications. Some are advertising same day funding.

Q: I am doing ok financially so far. Does that keep me from being able to apply to this program?
A: No. If you are doing ok financially so far, you can still apply. Economic hardship as of the date of application is not necessarily required. When you request this loan, you are certifying that the uncertainty of current economic conditions makes necessary the loan request to support ongoing operations and you are using the loan to support and maintain operations.

Q: My bank isn’t taking applications for these loans. Are there other options?
A: The website fundera.com has compiled a list of banks that are taking applications. They have been updating this list. Click HERE to see it.

 

I Received a Loan. Now What

Q: What can I use the loan for?
A: Payroll costs, interest on mortgages, rent, and utilities. In order for the loan to be forgiven without tax consequence, at least 75% of the forgiven amount must have been used for payroll.

Q: How long do I have to use the loan for it to be forgiven?
A: Businesses have 8 weeks from the loan origination date to use the loan on those qualified expenses in order for the amount to be forgiven with no tax consequence.

Q: Do I have to repay the loan?
A:  Like all loans, it is expected to be repaid. However, the SBA has specifically said that if a business uses the loan as intended, that it can be forgiven.  Not much guidance has been released on how forgiveness is applied for and obtained.

Q: Does the loan have any taxes, interest, or fees associated with it?
A: Banks are not supposed to have any fees associated with the loan including no prepayment penalties. Interest is set at 1% and the period for repayment is 2 years. The loan repayment can be deferred by 6 months from the date the program ends, but interest will continue to accrue.

Q: What else do I have to do to make sure the loan can be forgiven?
A: Forgiveness is based on the business maintaining or quickly rehiring employees and maintaining salary levels.  Forgiveness will be reduced if full-time headcount declines or if salaries decrease.

Q: I understand that the principal of the loan is forgiven, but how about the accrued interest?
A:  The guidance from the SBA states that accrued interest can also be forgiven.

Q: What if the loan provided ends up being greater than the expenses I am supposed to use it for during that 8-week period of time?
A: Any loan amounts in excess of expenses that qualify will need to be repaid (cannot be forgiven) and can be paid right away since there is no prepayment penalty. Otherwise the loan will have an interest rate of 1%. The loans have a low interest rate which make them more appealing.

Q: How are state tax authorities treating the forgiven loan from a tax standpoint?
A:  To date, states have not said whether they will conform to the Federal tax treatment.

Q: I need financial help now. What should I do?
A: Apply for the PPP immediately. Note: the PPP is only one of three grant/loan programs set out by the CARES Act. There is also:

  • Option 1: Immediate $10,000 Emergency Grant via SBA.gov
    • This grant is administered by the SBA and it takes about 10 minutes to get through the application.
    • Every business in the US can apply for this grant as the President declared the entire US a disaster area due to COVID-19. There is no downside to applying.
    • You will need your most recent business tax return filed, gross revenue and cost of goods sold for the most recent 12-month period, and your business' bank information for direct deposit purposes.
    • Note that if you get this grant and then apply for a PPP loan, the forgivable amount will be reduced by the $10,000.
    • This grant is basically an advance payment on Option 2. The first $10,000 of Option 2 is converted to a grant.
    • Funds are supposed to arrive within 3 days. Current reports are saying it may take up to 3 weeks.
    • Even if you end up getting denied the loan through Option 2, the SBA is not requiring repayment of the $10,000.

 

  • Option 2: SBA EIDL (Economic Injury Disaster Loan) via SBA.gov
    • More funds are available with this option, but it will take longer to get the funds and you are not guaranteed to receive the loan unlike Option 1.
    • May take 45-60 days to get funding so think longer-term support for operating expenses.

Learn more about Economic Injury Disaster Loans and Loan Advance

 

In Summary- CALL YOUR BANK ASAP to get started with the PPP loan today!

 Additional Resources:

Fact Sheet from the US Treasury : https://home.treasury.gov/system/files/136/PPP%20Borrower%20Information%20Fact%20Sheet.pdf