COVID-19 Webinar: Understanding What’s in the Economic Stimulus Package

April 2, 2020

Speakers: T.A. Hawks, Kimberly Ellis and Matt McAlvanah, Monument Advocacy, Washington, D.C.

The U.S. government has approved over $2 trillion in new stimulus spending to respond to the COVID-19 crisis. The funding will be distributed to certain American businesses, consumers and federal safety net programs in the coming months.

Learn more about the major components of the stimulus package and what may come next from Congress in this short, informative presentation by Monument Advocacy, a leading, bipartisan government and public affairs firm in Washington, D.C.

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Thank you all so much for joining the Webinar last Thursday on Understanding the Federal Stimulus Legislation with Monument Advocacy. Given the overwhelming number of questions that were on Small Business lending programs, Monument has compiled the below answers on some of the more common questions about the lending programs that can be answered based on existing information sources. Importantly, Monument has noted that SBA is supposed to release additional information and regulations that can hopefully answer more of the specific questions that businesses have raised. Once that information is available we will share it here.

FAQs Regarding the SBA Paycheck Protection Program (PPP) & Loan Forgiveness Program

Businesses and 501(c)(3) nonprofits with no more than 500 employees, including employees of affiliates or an employee-based size standard as prescribed by the SBA here. Definition of employees include full-time and part-time wage and salary earners. The CARES Act provides a waiver to the employee cap for accommodation and food service businesses – so as long as no single location employs 500 or more employees and businesses operating as certain franchises of the SBA’s Franchise Directory. Companies that receive financing via the Small Business Investment Company program can also participate.

Yes, sole proprietors, independent contractors, gig economy workers and self-employed individuals are eligible for Paycheck Protection Program.

No. Under the CARES Act, businesses do not have to seek other sources of capital, including equity or debt investments from owners with liquid assets prior to obtaining a Paycheck Protection Loan.

Yes, but with a caveat.

  • Current loan recipients or applicants for EIDLs specific to COVID-19 (between January 31, 2020 and the launch date of the PPP) are eligible to apply for a PPP. They may be able to refinance their EIDL into a PPP loan, where up to $10,000 would be subtracted from the amount forgiven under the Paycheck Protection Loan.
  • Once the PPP is launched, EIDLs cannot apply to the same expense as those covered by the PPP.

Businesses and non-profits are eligible for loans up to 2.5 times their monthly payroll costs – based on costs from the previous 12 months. Payroll costs comprise of salaries, certain employee benefits, state and local taxes and compensation to sole proprietors and independent contractors – up to $100,000. PPP loans do not apply to payroll for those making $100,000 or more, or for foreign employees, FICA and income tax withholdings and certain COVID-19 paid leave.

This amount is intended to cover 8 weeks of payroll expenses and any additional amounts for making payments towards debt obligations. This eight-week period may be applied to any eight-week time frame between February 15, 2020 and June 30, 2020.

Depending on the business’s situation, the loan size will be calculated in different ways. The maximum loan size is always $10 million. If you were in business February 15, 2019 – June 30, 2019 your max loan is equal to 250 percent of your average monthly payroll costs during that time period. If your business employs seasonal workers, you can opt to choose March 1, 2019 as your time period start date.

If you were not in business between February 15, 2019 – June 30, 2019, your max loan is equal to 250 percent of your average monthly payroll costs between January 1, 2020 and February 29, 2020.

If you took out an EIDL between February 15, 2020 and June 30, 2020 and you want to refinance that loan into a PPP loan, you would add the outstanding loan amount to the payroll sum.

The CARES Act specifies allowable uses of the loan to include:

  • Payroll costs (salary, wage, commission, or similar compensation), payment of cash tip or equivalent; payment for vacation, parental, family, medical or sick leave; allowance for dismissal or separation; payment required for the provisions of group health care benefits, including insurance premiums; payment of any retirement benefit; and payment of State or local tax assessed on the compensation of employees;
  • Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave and insurance premiums;
  • Employee salaries, commissions, or similar compensations (see exclusions above);
  • Payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation);
  • Rent (including rent under a lease agreement);
  • Utilities; and
  • Interest on any other debt obligations that were incurred before the covered period.

If employers retain their employees and retain wages/salaries, the loan will be forgiven. If layoffs occur, the forgiveness will be reduced by the percent decrease in the number of employees.

For example: If a PPP borrower’s payroll expenses decrease by 25 percent, the loan forgiveness amount is reduced by 25 percent.
However, if employers rehire employees by June 30, 2020, the full loan amount will be forgiven.

Borrowers will work with lenders to verify covered expenses and the proper amount of forgiveness. The loan is forgiven at the end of the eight-week range after the borrower takes out the loan.

No. The borrower is not responsible for the interest accrued in the eight-week period of the covered period of the forgiven loan. The remainder of the loan that is not forgiven will operate according to the loan terms agreed upon by the borrower and the lender.

The interest rate is capped at 4% under a ten-year term. Principal and interest will continue to be deferred, for a total of 6 months to a year after disbursement of the loan.

No. Borrowers will not have to pay any fees on the loan. Personal guarantees and collateral requirements are waived.

Loan payments will be deferred for at least six months and up to one year starting at the origination of the loan.

All current SBA 7(a) lenders are eligible lenders for PPP.

Applicants are eligible to apply until June 30, 2020.

The application process will be spelled out with additional guidance by the SBA. The CARES Act requires that the applicant must provide documentation verifying the number of full-time employees on payroll and pay rates during the covered period including payroll tax filings reported to the IRS, state income, payroll and unemployment insurance filings. They must be prepared to submit documentation including cancelled checks, payment receipts, transcripts of accounts, other documents verifying payments on covered mortgage, lease, and utility payments and obligations.

No, an entity is limited to one PPP loan.

Emergency Economic Injury Grant recipients and those who receive loan payment relief through the Small Business Debt Relief Program may apply for and take out a PPP loan.

The CARES Act requires a 60-day response time by the SBA.

The CARES Act does not specify this, but current emergency EIDLs are typically provided to borrowers in segments within five days of receiving approval by the SBA.

Starting April 3, 2020, small businesses and sole proprietorships can apply. Starting April 10, 2020, independent contractors and self-employed individuals can apply.

Businesses can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program.

FAQs Regarding Economic Injury Disaster Loans & Emergency Economic Injury Grants

EIDLs are lower interest loans of up to $2 million, with principal and interest deferment available for up to 4 years that are available to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses.

Small businesses (including sole proprietors with or without employees), independent contractors, cooperatives and employee owned businesses, private non-profits and tribal small businesses.

These grants provide an emergency advance of up to $10,000 to small businesses and private non-profits harmed by COVID-19 within three days of applying for an SBA EIDL. To access the advance, you first apply for an EIDL and then request the advance. The advance does not need to be repaid under any circumstance, and may be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments.

Those eligible for an EIDL and who have been in operation since January 31, 2020.

The grants will be available from January 31, 2020 – December 31, 2020. The grants are backdated to January 31, 2020 to allow those who have already applied for EIDLs to be eligible to also receive a grant.

Whether you’ve already received an EIDL unrelated to COVID-19 or you receive a COVID-19 related EIDL and/or Emergency Grant between January 31, 2020 and June 30, 2020, you may also apply for a PPP loan. If you ultimately receive a PPP loan or refinance an EIDL into a PPP loan, any advance amount received under the Emergency Economic Injury Grant Program would be subtracted from the amount forgiven in the PPP. However, you cannot use your EIDL for the same purpose as your PPP loan. For example, if you use your EIDL to cover payroll for certain workers in April, you cannot use PPP for payroll for those same workers in April, although you could use it for payroll in March or for different workers in April.

You can apply for an EIDL online with the SBA. When you apply, you can request an emergency grant of $10,000. The SBA will provide the grant within 3 days of receiving your application. You will not have to repay the grant, even if your application for a loan is denied.

FAQs Regarding the Small Business Debt Relief Program

7(a) loans not made under the Paycheck Protection Program (PPP), 504 loans and microloans. Disaster loans are not eligible.

Borrowers may separately apply for and take out a PPP loan, but debt relief under this program will not apply to a PPP loan.

In general, businesses must meet size standards, be based in the U.S., be able to repay, and have a sound business purpose. To check whether your business is considered small, you will need your business’s 6-digit North American Industry Classification System (NAICS) code and 3-year average annual revenue.

7(a) loans are an affordable loan product of up to $5 million for borrowers who lack credit elsewhere and need access to versatile financing, providing short-term or long-term working capital and to purchase an existing business, refinance current business debt, or purchase furniture, fixtures and supplies. In the program, banks share a portion of the risk of the loan with the SBA. There are many different types of 7(a) loans, you can visit this site to find the one that’s best for you. You apply for a 7(a) loan with a bank or a mission-based lender. The SBA has a free referral service tool called Lender Match to help find a lender near you.

The 504 Loan Program provides loans of up to $5.5 million to approved small businesses with long-term, fixed-rate financing used to acquire fixed assets for expansion or modernization. It is a good option if you need to purchase real estate, buildings and machinery. You apply through a Certified Development Company, which is a nonprofit corporation that promotes economic development. The SBA has a free referral service tool called Lender Match to help find a lender near you.

The Microloan Program provides loans up to $50,000 to help small businesses and certain not-for-profit childcare centers to start up and expand. The average microloan is about $13,000.

Sources: Coronavirus Aid, Relief, and Economic Security (CARES) Act – Public Law No: 116-136, Senate Small Business Committee, Small Business Administration, a summary provisions compiled by Senator Chuck Schumer’s office.