Federally Guaranteed Loans for Small Businesses – Applications Start April 3rd – Get Prepared NOW!

April 1, 2020

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed on March 27th and designed to help stimulate the US economy in light of the current global pandemic. $349B has been set aside for the Small Business Paycheck Protection Program (PPP) which is aimed at helping US small businesses keep workers employed via job retention loans. These loans will be eligible for partial or full forgiveness as long as the funds are used to keep employees on the payroll and for certain other expenses.

This money will not last long, so if your company is eligible, it will be important to apply quickly and be prepared when you apply so that it will be approved. Treasury and the Small Business Administration (SBA) plan to have the program ready for applications this Friday, April 3rd. The goal of Treasury and the SBA is for a company to go to a participating SBA 7(a) lender, bank, or credit union, apply for a loan, and be approved on the same day. Other companies are already getting in line with their lenders so it is important to secure your spot with your lender and quickly get your application in order, so that you are eligible to apply, you are with the front of the pack. This will increase your chances of the funds still being available if your loan is approved.

Who is eligible?

A small business with fewer than 500 employees (this threshold includes ALL employees: full-time, part-time, and any other status)
A small business that otherwise meets the SBA’s size standard for certain industries (be sure to review the affiliate definition, in particular) https://www.sba.gov/federal-contracting/contracting-guide/size-standards
A 501(c)(3) with fewer than 500 employees
An individual who operates as a sole proprietor
An individual who operates as an independent contractor
An individual who is self-employed who regularly carries on any trade or business
A Tribal business concern that meets the SBA size standard
A 501(c)(19) Veterans Organization that meets the SBA size standard

What are the terms of the loan?

The maximum loan amount is up to $10 million
If proceeds are used for payroll costs, interest on mortgages, rent, and utilities in the 8 weeks following the date of loan origination, the loan amount will be eligible for forgiveness. However, forgiveness will be reduced is there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees . Due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll.
All loans under this program will have the following identical terms, regardless of lender or borrower:

Maximum Interest rate of 4%	No collateral
Maturity of 2 years	No personal guarantees
First payment deferred for six months	No borrower or lender fees payable to SBA
100% guarantee by SBA

When do you apply?

Small businesses and sole proprietorships can apply starting Friday, April 3, 2020
Independent contractors and self-employed individuals can apply starting Friday, April 10, 2020
The new loan program will be available retroactive from Feb. 15, 2020, so employers can rehire their recently laid-off employees through June 30, 2020

How much can you borrow?

Loans can be up to 2.5 x the borrower’s average monthly payroll costs, not to exceed $10 million
- Average total monthly payroll costs based on amounts incurred in the year prior to the loan
- For businesses not operational in 2019, average total monthly payroll costs based on amounts incurred for January and February 2020

Where do you apply?

A list of participating lenders as well as additional information and full terms can be found at www.sba.gov.
The Paycheck Protection Program Application Form can be found HERE
If you’re a lender, more information can be found HERE
If you’re a borrower, more information can be found HERE

The Treasury Department just released guidance for the Paycheck Protection Program on March 31, 2020 and we expect the funds to be highly sought after. Therefore, we recommend that you move quickly to apply for these funds. As always, we are here to help.

Hughes Pittman & Gupton, LLP