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March 30, 2020

COVID-19 Financial Assistance Provided by the SBA

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Giulia-DiCenzo
By: Giulia Di Cenzo

As tax attorneys and business professionals in Columbus, Ohio, we assist business owners in many aspects of their business, tax planning, as well as the impact of legislation on business income and cash flow. The unprecedented COVID-19 pandemic has caused unparalleled interruptions to almost all market sectors. Businesses are now facing significantly reduced income, or even zero income, resulting in lower cash flows for ongoing operations. The COVID-19 related economic effects have prompted Congress to respond with phases of unprecedented economic assistance legislation to assist businesses, individuals, and families affected by COVID-19. Businesses may seek relief from their COVID-19 related cash flow issues in the form of a loan from the Small Business Administration (“SBA”).

Phase I: On March 6, 2020, the Coronavirus Preparedness and Response Supplemental Appropriations Act (“CPRSA”) was signed into law, marking it as the first major legislative-initiative to address the COVID-19 emergency. The CPRSA provides $8.3 billion in emergency funding for federal agencies to respond to the coronavirus outbreak. Under Title II of the CPRSA, the SBA is provided appropriations for the Disaster Loans Program Account to provide Economic Injury Disaster Loans (“EIDL”) and Loan Advances to businesses negatively affected by the COVID-19 emergency. The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million which can provide vital economic support to small businesses in order to help overcome the temporary loss of revenue. Those applying for an EIDL may also receive a loan advance of up to $10,000, to be used by businesses to cover for ongoing operations while their application is being considered. Funds will be made available within 3 days of a successful application, and the Loan Advance will not have to be repaid even if the applicant is denied an EIDL.

Also, on March 17, 2020, the SBA revised its guidelines so that states or territories are only required to certify that at least five small businesses within that state or territory have suffered substantial economic injury, regardless of where those businesses are located (historically, the SBA required a state or territory to provide documentation certifying that at least five small businesses have suffered substantial economic injury as a result of a disaster, with at least one business located in each declared-disaster area). Under the SBA’s revised guidelines: small business in declared-disaster areas can apply online for an EIDL; and private nonprofits, homeowners, and renters can also apply online for a disaster assistance loan from the SBA. The chart below contains additional information regarding Economic Injury Disaster Loans and Loan Advances.

Phase II: On March 18, 2020, the Families First Coronavirus Response Act (“FFCRA”) was signed into law, marking the second major legislative-initiative to address the COVID-19 emergency. The FFCRA addresses paid family medical leave and paid sick leave, insurance coverage of COVID-19 testing, nutrition assistance, and unemployment benefits.  Additional information on the FFCRA can be found here or in our latest three series blog regarding this discussion, “The Families First Coronavirus Response Act, and The Impact on Employers”.

Phase III: On March 27, 2020, President Trump signed the CARES Act into law. The CARES Act contains provisions that provide Small Business Interruption Loans as well as a variety of other financial assistance policies and programs for qualified businesses and individuals. The CARES Act creates a new type of loan for the SBA to administer, called the Paycheck Protection Program (“PPP”). Unlike the EIDL, the PPP is potentially forgivable for up to 100% of the principal amount borrowed. Additionally, unlike the SBA’s disaster loans, the PPP is not tied directly to establishing losses suffered during the COVID-19 outbreak, as there is already a presumption of negative impact. The PPP does not require collateral or guarantees, so the program is available to many new businesses not otherwise able to avail themselves to the SBA loan programs and provides much friendlier terms than traditional SBA loan programs. The chart below contains additional information regarding the Paycheck Protection Program.

Loan Type

SBA’s Economic Injury Disaster Loans (EIDL)

SBA’s Paycheck Protection Program (PPP)

Loan Advance Available?

Yes, up to $10,000 Loan Advance that will not have to be repaid even if the applicant is subsequently denied an EIDL.

No.

Eligibility:

Small businesses, small agricultural cooperatives, and most nonprofits located in declared disaster areas.

The SBA defines a “small business’ as one that typically makes a maximum of $38.5 million in annual revenue and has fewer than 100 – 1,500 employees, depending on industry.

Businesses and nonprofits, except those with Medicaid funds, that have been substantially affected by COVID-19 (including supply chain disruptions, staffing challenges, decreases in sales or customer levels, or shuttered businesses).

For the purposes of this loan, a small business is one with fewer than 500 employees (subject to limitations), or those that meet the SBA’s industry-based “size standard” requirements.

Loan Amount:

Maximum of $2 million, and is based upon the economic injury of the business, as well as the business’s financial needs, and is determined through the SBA’s application process.

Maximum of $10 million, or equal to the value that is 2.5 times the average total monthly payments during the 1-year period before the date on which the loan was made by the applicant for:

(1) Payroll;

(2) Mortgages and/or Rent; and

(3) Any debt service obligations that were in place before March 1, 2020.

Loan Terms:

The EIDL can be used to pay for expenses that the business would have been able to pay, if not for the occurrence of COVID-19. This includes:

(1) Payroll, including paid sick leave;

(2) Accounts payable; and

(3) Payments on short term notes and long term notes incurred before March 1, 2020.

The PPP loan can be used to pay:

(1) Payroll, including paid sick, medical, or family leave;

(2) Continuation of group health care benefits;

(3) Employee salaries;

(4) Mortgage payments;

(5) Rent;

(6) Utilities; and

(7) Debt obligations incurred before March 1, 2020.

Interest Rates:

2.75% for non-profits

3.75% for small businesses

Maximum rate of 4.00%

Loan Term Maximum:

Maximum term of 30 years.

The loan term is determined from the business’s ability to repay the loan.

Maximum of 10 years.

Guidance for determining the loan term will be provided to lenders within 30 days of March 27, 2020.

Loan Forgiveness Provision?

No, there is no provision for loan forgiveness.

Yes. Loan amounts applied to maintain payroll from March 1, 2020 through June 30, 2020 are forgivable as applicable below. The forgivable loan amounts will be treated as nontaxable income to the businesses.

Forgivable amounts cannot exceed the sum of:

(1) Payroll costs during the covered period; and

(2) Payments made during the covered period on debt obligations incurred before the covered period.

Loan forgiveness does not include:

(1) Compensation of an individual employee in excess of $33,333 during the covered period, or $100,000, annually;

(2) Qualified sick leave wages for which a credit is taken under Section 7001 of the Families First Coronavirus Response Act; and

(3) Qualified family leave wages for which a credit is allowed under Section 7003 of the Families First Coronavirus Response Act.

Loan forgiveness is reduced by a percentage equal to the percentage of employees let off during the period, as well as by reductions in employee pay greater than 25%. The calculation for the reduction in employee pay only concerns employees who would have made less than $33,333 in the covered period, or $100,000 annually.

Payment Deferral Allowed?

Yes, for 30 days.

Yes, between 6 months and 1 year.

Personal Guarantee:

A guarantor is required to receive the loan.

No guarantor is required. The loan is 100% guaranteed by the federal government, through December 31, 2020.

Prepayment Penalties:

None.

None.

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March 30, 2020

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