SBA Loan Programs under the CARES Act: Look Here First For Financing
SBA Small Business Loan Programs Expansion
of SBA Section 7(a) Loan Program
Paycheck
Protection Program (PPP) Loans from SBA Lenders (banks) Economic Loans
Injury Disaster Loan Program (EIDL)
directly from the U.S. government
Paycheck Protection Program (PPP)
$349 Billion authorized Forgivable loans to incentivize small businesses to avoid furloughing their employees. Expands “small business” eligibility Any
business with 500 or fewer employees, regardless of revenue. Hotels and restaurants (NAICS Code 72) with 500 or fewer employees per location. Note: SBA affiliation rules still apply, except for hotels, restaurants, franchises and SBIC-financed companies.
PPP Loan Terms Up
to 2.5X average monthly payroll over prior 12 months, with a limit of $10 million Term of loan is 2 years Interest rate will be 0.5% Payments deferred for six months No security or personal guarantee required Permitted uses: payroll, rent, employee benefits, utilities and interest on pre-existing debt
PPP Loan Forgiveness The
loan amounts eligible to be forgiven are the sum of the following expenses during the 8 weeks after origination of the loan: Payroll
costs Interest on a covered mortgage obligation (but not other debt) Covered rent payments Covered utility payments “Covered”
2020.
means it was in force before February 15,
PPP Loan Forgiveness (continued) The
eligible amount of loan forgiveness is reduced as follows: Proportionately
in connection with a reduction in employees (i.e., 20% less employees equals a 20% reduction in amount forgiven) Less the amount of a compensation decrease during the 8 weeks following loan origination of more than 25% for any employee making less than $100,000 The
amount of the loan that is forgiven does not count as gross income to the employer.
EIDL Loan Program $17
Billion authorized This program is currently live – apply online at https://www.sba.gov/disaster/apply-for-disasterloan/index.html Eligibility Small
businesses (500 or fewer employees) Private non-profits SBA allowed to approve based on applicant’s credit score
EIDL Loan Terms Loans
are determined by actual economic injury and can be for up to $2 million Term of up to 30 years Interest rate is 3.75% for small businesses and 2.75 for non-profits Permitted uses: repay fixed debts, payroll, accounts payable and other bills that cannot be paid due to disaster Loans over $25,000 are required to be secured with collateral
EIDL Loan Terms (cont.) No
personal guarantee for loans below $200,000 Not required to seek credit elsewhere You can get a $10,000 advance on this loan within 3 days. If your EIDL loan application is denied, you do not have to repay the $10,000 advance.
Practical Tips: PPP vs. EIDL EIDL
is currently live, and you can get an advance of $10,000 in 3 days. Likely 3-4 weeks SBA for decision and funding. PPP is not yet live. Regulations to come out within 15 days after CARES Act (i.e., by April 11) PPP has major advantage of being forgivable. Also larger appropriation ($349B). You
can obtain an EIDL loan and then refinance it into a forgivable PPL loan (to the extent of permitted uses under PPP). However, you cannot obtain both loans for the same purposes. Important dates: PPL runs through June 30, 2020; EIDL runs through Dec. 31, 2020 Check your existing loan covenants.
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