Small Business Administration (“SBA”) COVID-19 Loan Programs Update

by: Mario J. Fazio, Lisa A. Lowe, Michelle R. Gearity

On March 27, 2020, President Trump signed into law the Coronavirus Aid Relief and Economic Security Act (CARES Act) providing around $350 Billion in new loans and grants for businesses with less than 500 employees that are negatively affected by the COVID-19 pandemic. Please see our previous MRFL coverage of the CARES Act and the Families First Coronavirus Response Act (Families First Act).

Paycheck Protection Program (“PPP”)

  • The PPP Loan is the centerpiece of the government’s relief efforts for small business.
  • The PPP loan provides for SBA fully-guaranteed loans up to 250% of a business’ average monthly payroll expenses (limit is $10 million per borrower).
  • The PPP loan is expected to have a term of 2 years and an annual interest rate of 0.5% interest. The first payment will be deferred for 6 months.
  • One of the most important features of the PPP is that the loan may be fully or partially forgiven if the proceeds are used for payroll costs and other designated expenses (mortgage interest, rent, utilities) in the 8 weeks following the date of loan origination. It is likely that not more than 25% of the forgiven amount may be for non-payroll costs.
  • No collateral or guaranty will be required for these loans.
  • PPP loans will be made through SBA-approved banks and lending institutions. Businesses should immediately contact their local lender to discuss the PPP.
  • It is highly expected that applications will be available on Friday, April 3, 2020, and must be submitted on-line. If you intend to apply for a PPP loan, we recommend applying as early as possible
  • In preparation for completing and submitting a PPP loan application, businesses should review the sample SBA loan application for the PPP loan, which is attached. You will need your average monthly payroll for 2019 as soon as possible to apply for the PPP loans.
  • There is no prohibition on applying for both the EIDL and the PPP, if you apply for the EIDL loan first (i.e., those that already applied for EIDL can apply for a PPP and, “refinance” the amount of the EIDL into the PPP—it won’t be forgiven but the PPP has a lower interest rate, albeit shorter term). As of April 1, 2020 guidance from the SBA, If you apply for the PPP, you cannot subsequently apply for the EIDL.

The CARES Act expanded the existing Economic Injury Disaster Loan (EIDL) Program. The application for the EIDL is available now on the SBA’s website; there is a $10,000 grant available to eligible businesses as a part of the online EIDL loan application, payable within 3 days of the application. This grant does not have to be repaid, even if the business is ultimately denied a loan. The maximum amount of an EIDL is $2,000,000 (interest rates are 2.75% for nonprofits and 3.75% for small businesses). Loans of $200,000 or less will not require a guarantor. There are no fees or prepayment penalties and loan terms will be between 10 and 30 years. In addition to the application form, applicants must provide their latest tax returns, profit and loss statements, and personal financial statements of the owners. Sole proprietors and independent contractors are eligible to apply for these loans.

Review non-loan options to meet short-term cash flow needs. The CARES Act provides for refundable payroll tax credits for employers who have been shut down or experiencing significant decline in revenues resulting from the COVID-19 epidemic. However, these tax credits are not available if a business obtains a PPP loan. In addition, the act also provides for the deferral of the employer portion of payroll taxes owed on wages paid through December 31, 2020, for up to two years. However, the right to delay the payment of payroll taxes is not permitted if a PPP loan is obtained and forgiven.

Businesses experiencing significant cash flow problems may also wish to explore with your lender payment deferment or forbearance options for existing debt obligations. As the COVID-19 epidemic sweeps across the country, most banks are willing to work out special arrangements with their customers in these uncertain times. Meyers Roman attorneys are experienced in negotiating loan modifications and other arrangements to help you in this time of need.

Paycheck Protection Program Sample Application Form

Richard Bain
Hunter W. Benson
Peter Brosse
David Croft
Bryan Dardis
Mario Fazio
Robert Fuerst
Michelle R. Gearity
R. Scott Heasley
Scott Lewis
Lisa Lowe
Anne Meyers
R. Russell O’Rourke
Nathan B. Zion