Coronavirus / COVID-19 Recovery Loan Options
This webpage has been setup to provide the latest and most detailed information available as it relates to lending options in response to the devastating effects and business interruptions caused by Coronavirus / COVID-19. This webpage is meant to be a resource to small business owners and is not all inclusive. We are trying to keep this webpage as up to date as possible as information becomes available.
Before diving into lending programs there are a few important notes we think every business owner needs to consider before seeking additional financing. Those are as follows:
- Despite the current crisis, we are in contact with all of our lending partners and lending is continuing. We have gotten new loans approved within the last week, we continue to have interest in new loan requests from existing lenders, and lenders have told us they are open for business. This is not 2007 & 2008. Lenders are well capitalized and are still looking to make loans and do business. However, expect the process to be much slower for the next 30 to 60 days and new loan requests are going to move slowly for a short while as Bank’s seek to help the most at risk.
- If you have an existing commercial loan and lender, you need to contact that lender before requesting any additional financing from another source. Many lenders are offering short term funding to clients in need as well as loan deferments (where payments can be adjusted or pushed off for several months and either added to the back end of the loan or caught up in future months). You need to talk to your existing lender first to see what they will offer and to be sure any other options you are considering (including government programs) will not trigger a default or covenant violation with your existing relationship. Now is not the time to hide what is going on with your business from your current Bank. Call your lender and ask for help. Everyone understands that what is going on related to Coronavirus is not reflective of your business but is an Act of God and out of your control.
- Watch out for scammers. We have already seen people promising assistance for up-front payments. The application process for Disaster Relief loans is something you can do yourself. If anyone asks you for an any sort of fee up-front while promising financing, be very wary. We also caution clients on taking out a bunch of short term capital from high interest rate lenders.
CARES Act – SBA Payment Relief
The CARES Act is the new stimulus bill passed by Congress and signed by the President on March 27th, 2020. The bill contains a provision that six-months of loan payments (both principal and interest) on all qualified SBA loans (including SBA 7A, SBA 504, and SBA Express) would be covered by the SBA. The provision works as follows:
- Any existing SBA loan in a Regular Servicing Status (meaning current and not in collections) will qualify for the next six months of payments to be made by the SBA.
- If any existing SBA loan is already on deferment, then the next six months of payments once the deferment ends will be made by the SBA.
- If a new SBA loan is made, the first six months of payments on that loan will be covered by the SBA.
There are likely to be additional details on this provision coming out from the SBA shortly, but the above is the detail contained in the bill.
CARES Act – SBA 7A Addition of the “Paycheck Protection Program”
The CARES Act is the new stimulus bill passed by Congress and signed by the President on March 27th, 2020. The bill contains an additional new SBA 7A program referred to as the “Paycheck Protection Program”. Although the program is setup as a “loan” at least initially, a portion if not the full loan can be forgivable in the future, so the program really ends up acting more as a “grant” than a loan. Here is the most up to date information released by the SBA.
- Starting on April 3rd, 2020 small business owners and sole proprietorships can apply for the loans with the roughly 800 existing approved SBA lenders nationwide. Starting on April 10th, 2020 independent contractors and self-employed individuals can apply for the loans from the 800 existing approved SBA lenders nationwide. Non-SBA lenders need to apply and get qualified for the program, so other lenders should come online over time. We recommend contacting your Bank or institution directly to see if they plan to participate in the program
- You must be a company that employs 500 or fewer employees. It appears there are some exceptions for certain types of companies that employ more than 500 people, but we do not have the detailed list of exceptions at this time.
- This program is open to both for-profit and non-profit businesses and entities as well as self-employed independent contractors and sole proprietors.
- To qualify a company must have been in business as of 2/15/2020 and had employees or 1099 independent contractors earning pay since that time.
- There is a specific application you will need to complete. There is a draft application available, but the final application has not been released yet.
- You will also need to provide payroll information. It appears they are going to use average payroll for the 2019 fiscal year, so you will need to provide payroll documentation for 2019. If you are a seasonal employer, you will need to provide evidence of payroll over the season you pay the majority of your employees.
- The loans will be for two months of your average “Payroll Costs” plus an additional 25%. They are going to exclude the portion over $100,000 for any individuals compensated more than $100,000. “Payroll Costs” include wages, commissions, or tips, employee benefits such as vacation, sick time, group health benefits, and retirement benefits, state and local taxes, and for sole proprietors or independent contractors net earnings from self-employment capped at $100,000.
- At the end of 2020 so long as employees are retained and pay is not significantly reduced for employees, the loan or a portion thereof can be forgiven. 8 weeks of key expenses including payroll costs, mortgage interest (for owner-occupied properties), rent, and utility payments over the 8 weeks after getting the loan. Not more than 25% can go for non-payroll expenses. You must maintain your payroll and staff to get the full forgiveness.
- If you let employees go between February 15th, 2020 and April 26th, 2020, you have until June 30th, 2020 to restore them to full-time employment and salary levels to still qualify for the forgiveness.
- To apply for the loan forgiveness, you will have to provide proof to your lender that the funds were used to make the required payments and that you retained your employees. If you have decreased wages for any employee by more than 25% or terminated any employee, then the forgiveness amount can be reduced. The exact formulas have not been published by the SBA yet.
- Loan payments are deferred for the first six months after the loan is made but interest will accrue over those six months. It does not appear interest is forgiven, so that will need to be paid by the Borrower.
- The loan is a two-year loan with an interest rate of 0.50% fixed, so any amounts not forgiven will need to be paid by the Borrower. There is no prepayment penalty or fees on the loan.
- The loan is unsecured and does not have a personal guarantee, although if the loan proceeds are not used for the appropriate purposes the SBA can go after the Borrower.
- It is not clear how financing from another program (namely the SBA Disaster Assistance Program) will impact eligibility on this loan. We are still awaiting further guidance from the SBA. There is a spot in the sample application provided where an applicant has to disclose any other funds received. We are not sure how that will impact qualifications in this program and once we have more information we will post it.
We have gotten very mixed reactions from our lending partners and the initial indications make it appear that the focus of most financial institutions is going to be on supporting existing customers with the Paycheck Protection Program versus taking on new customers. If you are interested in the Paycheck Protection Program alone, we recommend you apply directly to your existing lender or deposit institution. It does appear we may have some options if your lender is not willing to do the loan, and once lenders get back to us with how and for whom they intend to provide the program, we will relay that information.
SBA Disaster Assistance Loans
We are getting a lot of questions related to SBA Disaster Assistance Loans. Here is what we know at this point:
- The U.S. Small Business Administration is now offering low interest loans to businesses in impacted areas called Disaster Assistance Loans. Here is the application link: Disaster Assistance Loan Application
- Right now applications are only being taken by the SBA directly. If this changes and other lenders begin offering disaster loans on behalf of the SBA we will let you know immediately. If anyone else says they are providing disaster assistance loans, be cautious as there are some scams out there.
- If you apply for an SBA Disaster Assistance Loan through the SBA it appears you cannot also get the SBA Paycheck Protection Program. So be sure the SBA Disaster Assistance Loan is the right fit for you.
- The loans may be used to pay fixed debts, payroll, accounts payable and other bills that cannot be paid because of the disaster’s impact.
- There is no minimum loan amount and the maximum loan amount is $2 million. We have been told that the loan will be based off of 6 months of Gross Profit. Gross Profit is typically profit after cost of goods sold but before standard operating expenses. Gross Profit is typically reflected as Line 6 on an S-Corp tax return, Line 8 on a Partnership / LLC tax return, and Line 11 on a C-Corp tax return, although we do not know if that is what the SBA is going to use to calculate gross profit. We also do not know if the SBA is going to make any other adjustments in calculating Gross Profit for the purposes of deciding how much of a loan a business with qualify for.
- Interest rates on these loans are 3.75% for for-profit businesses and 2.75% for non-profits. Typically, non-profit businesses do not qualify for SBA financing but they do for SBA Disaster Relief loans.
- The loan term is set by the SBA but can be as long as 30 years.
- We have been told there is no prepayment penalty on the loan, so if you take the loan and if you don’t end up using it all you can always repay it sooner.
- If you start the application process, please note that currently there is no place to enter a loan amount requested on the application. We understand the SBA will determine via the financial information you are required to provide with the application how much money you qualify for and will then give you an offer. You can always then try to negotiate that offer or take less if you need less.
- Guidelines as we understand them:
- Borrowers / owners must have a FICO score greater than 570
- Businesses have to have been in business for more than one year
- The loan amount guidance is that the loan will be equal to 6 months of gross profits.
- Applicants will receive a phone call asking to verify their historical revenues and cost of goods sold
- Loans up to $500,000 might not require financial documentation
- Loan amounts greater than $500,000 will most likely be slower and require more documentation.
- As part of the application process you will need to complete an application including the following (this is what we have been told as of this point), all of which can be submitted or completed online as part of the SBA application link provided above:
- An application – SBA Form 5
- Tax Information Authorization – IRS Form 4506-T completed and signed by each applicant and each owner with a 20% or greater ownership interest.
- A 4506-T for each affiliate business – an affiliate business is any other business that any owner or the primary business has a 50% or more ownership interest in.
- Complete copies including all schedules of the most recent Federal Income Tax Returns for the applicant business and an explanation if not available
- A Personal Financial Statement (SBA Form 413) completed, signed and dated by the applicant and each principal owning 20% or more of the business
- A Schedule of liabilities listing all fixed debt (SBA Form 2202 may be used)
May be Required
- Complete copy of the most recent Federal Income Tax Returns for each principal who owns 20% or more of the business and for each affiliate business that any principal owns 50% or more of
- If the most recent corporate tax return has not been provided a year-end profit and loss statement and balance sheet for the most recently completed tax year
- A current year-to-date profit-and-loss statement
- Additional Filing Requirements (SBA Form 1368) providing monthly sales figures will generally be required when requesting an increase in the amount of economic injury
- We have been told the SBA has said it will take 21 days to process each loan application. Once processed and accepted loan documents will be sent to the customer and once completed and returned the SBA will need 5 days to fund the loan. The time it takes to process these loans could certainly get extended based on the volume anticipated.
- Please note this program is to provide working capital, pay bills and assist businesses with expenses for lost revenues related to Coronavirus. This program is not designed to provide funding to acquire new equipment, expand the business, open new locations, payoff or consolidate other debt (only to help make payments on other loans during the affected time period), etc. If you need financing for other purposes, please talk to us about other options including more conventional SBA 7A financing options.
The above is the most comprehensive information released to date. As more information becomes available we will let you know. You can watch for direct updates to the program at: https://www.sba.gov/disaster-assistance/coronavirus-covid-19
As it relates to the above programs, the SBA Disaster Assistance Loans must be applied for directly with the SBA, and you can find a link on our webpage to do so. If you are interested in applying for that loan, we recommend you do so directly. The application is not difficult, and it is processed directly by the SBA.
SBA 7A Loan Program Updates
In the CARES Act passed by Congress and signed by the President on March 27th, 2020, there appears to be only one major change to the standard SBA 7A loan program. That change is an increase in the maximum loan amount under the SBA Express Loan Program (which requires a lesser amount of documentation to close than the more widely used SBA 7A loan program) from $350,000 to $1 million through the end of 2020. After 2020 it will go back down to $350,000.
There is discussion of other pending legislation that could further change the SBA 7A loan program. If other changes are made we will update this webpage accordingly.
Other Lending Options
In addition to the SBA Disaster Assistance Loans, or if you do not qualify for those loans, there are plenty of other loan options available to businesses in need. A sampling of other products is below:
- Conventional SBA 7A or SBA 504 loans providing real estate, equipment, inventory, and working capital financing to customers that do not qualify for SBA Disaster Assistance loans or to businesses in need of capital for purposes not covered under the SBA Disaster Assistance program.
- Traditional Bank Financing including lines of credit, equipment debt, and cash-out owner-occupied or investment mortgage loans
- Asset based lenders and factoring companies lending money on accounts receivable, inventory, and equipment
- Non-Bank real estate lenders providing conforming fixed rate owner-occupied and investment real estate loans (including single family investment properties) with cash-out available up to 70% to 75% of value
- Hard Money / Private Money short-term and bridge loans to provide an influx of capital on a shot-term basis.
If you have any questions or you want to explore what financing options are available to you, and whether a SBA Disaster Relief Loan or another program makes the most sense for you and your business, please do not hesitate to contact us at firstname.lastname@example.org or at 888-975-0007.