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SBA LOANS AVAILABLE FROM THE COVID-19 CARES STIMULUS PACKAGE

On March 27, 2020, President Trump signed into law a $2 trillion coronavirus emergency stimulus package called the CARES (Coronavirus Aid, Relief, and Economic Security) Act. On Friday and throughout the weekend, the SBA has provided guidance to Lenders on the procedures and applications required for the Loans, so small businesses can now apply for any of them.

The CARES Act offers 4 different types of loans for small businesses via the Small Business Administration. The following is a summary of the purpose, who can apply, pros and cons for each loan program and a link for the application or more information. On Friday and throughout the weekend, the SBA has provided guidance to Lenders on the procedures and applications required for the Loans, so small businesses can now apply for any of them.

Bottom line:

● If your small business is still paying its work force, then you need to confirm with your accountant whether should be applying for the Paycheck Protection Program or apply for the Employee Retention Credit.

● Additionally, the Economic Injury Disaster Loan Emergency Advance should be considered.

For more information on these loan programs, employment retention/termination and all other small business and construction issues, please contact Corey B. Stern at Chitkowski Law Offices at [email protected] or 630-824-4808.

Paycheck Protection Program

Purpose: Provides incentive for business to keep their workers on the payroll. The SBA will forgive loans if all employees are kept on the payroll for 8 weeks and the loan money is used for payroll, rent, mortgage interest or utilities.

Who can apply:

This program is for any small business with less than 500 employees, including sole proprietorships, independent contractors and self-employed persons.

Pros:

● The loan will be forgiven, if used for the specific purposes of payroll costs, interest on mortgages, rent, and utilities.

● However, 75% of the loan funds must be used for payroll.

● Repayment of the Loan will be deferred for 6 months and up to 1 year.

● No collateral or personal guarantees required.

● No fees should be charged.

● Can borrow up to $10 million, but is meant to cover 8 weeks of average monthly payroll.

Cons:

● Must keep employees on the payroll and maintain salary levels.

● Loan Forgiveness will be reduced if employee level or if salary or wages decline.

● Maturity within 2 years with an interest rate of 1%, for amounts not forgiven.

● By receiving the loan, the small business will not be able to take advantage of the Employee Retention Credit against employment taxes.

● The use of funds for the authorized purposes must be documented.

The small business will need the following documents to apply:

1) 2019 IRS Form 940.

2) 2109 IL Form UI-3/40 for all four quarters.

3) 2019 year end payroll listing all salaries & wages paid, which should match line 5 of the Form 940.

4) List of all employees who receive greater than $100,000 in salary or wages in 2019.

5) Proof of amounts paid in 2019 for employer health benefits.

For the Application:

https://www.sba.gov/document/sba-form–paycheck-protection-program-borrower-application-form

Economic Injury Disaster Loan Emergency Advance

Purpose:

To provide economic relief as a result of a temporary loss of revenue.

Who can apply:

This program is for any small business with less than 500 employees, including sole proprietorships, independent contractors and self-employed persons.

Pros:

The loan amount is up to $10,000.00 and will not have to be repaid.

Cons:

● Must be used for certain business costs, specifically related for Covid-19. For example, providing paid sick leave to employees unable to work; maintaining and paying employees; supply chain interruptions; rent or mortgage payments; or paying obligations that cannot be met due to revenue losses.

For the Loan Application:

https://covid19relief.sba.gov/#/

Economic Injury Disaster Loan

Purpose:

To provide a loan for small businesses within the disaster relief area.

Who can apply:

This program is for any small business with less than 500 employees.

Pros:

Can be used to pay for fixed debts, payroll, accounts payable and other bills that cannot be paid because of the disaster.

Cons:

Interest rate of 3.75%

Loans must be repaid, but the terms are determined on a case-by-case basis.

For the Application:

https://covid19relief.sba.gov/#/

SBA Express Bridge Loans

Purpose:

To provide bridge loan financing on an emergency basis in an amount up to $25,000.00, while the small business applis for and await the long-term financing.

Who can apply:

This program is for any small business with less than 500 employees.

Pros:

● No collateral is required.

Cons:

● Must demonstrate that the business cannot get some or all of the loan funds from other non-Federal, including the Lender, sources on reasonable terms, which must be fully documented.

● Normal fees charged by the Lender are applied.

For the Loan Application:

https://www.sba.gov/document/support–express-bridge-loan-pilot-program-guide

SBA Debt Relief

Purpose:

The SBA will automatically pay the principal, intertest and fees of a current 7(a), 504 and microloans for 6 months.

Who can apply:

Any small business who has an applicable loan with the SBA.

Pros:

● Provides for relief of payments that are due to the Lender for a SBA loan.

Cons:

● Must have an applicable loan with the SBA.