There is no question about it that the coronavirus (COVID-19) shock has had devastating effects on our economy; the likes of which, we have never witnessed. New travel restrictions, shelter-in-place orders, and social distancing measures have left business owners scrambling to figure out how to run their company with diminished to zero cash flow. These economic conditions are not likely to lessen before the summer. Goldman Sachs forecasts that the economy is set to contract by up to 24% in Q2 of 2020 before rebounding in Q3 and Q4. Fortunately, an unprecedented government stimulus bill and supplemental legislation aims to help small businesses figure out how to keep their doors open through these times. Large amounts of the recently passed H.R. 6074, H.R. 6201, and economic stimulus package have been allocated to a revamped SBA loan program. These bills take aim at various areas of the SBA lending program, including the Economic Injury Disaster Loan Program (EIDL). Businesses with a physical presence in any of the designated states qualify for EIDL loans. In addition, they also establish a small business interruption loan program. Any business with fewer than 500 employees will now be able to seek a portion of the $349 billion of allocated assistance for small business interruption.

Highlights of each loan program are provided below:

EIDL

All application for these loans will be handled online through the SBA. Businesses seeking a loan should be prepared to upload three years of historical information including tax returns and financial statements, though some applicants may be approved solely on credit score. Owners with more than a 20% share should be prepared to upload personal financial statements. The SBA’s internal formulas will determine your loan amount. Application processing time can take up to 21 days, and it will be indicated that your loan has been processed once you receive your application number. Details include:

  • Term loans up to $2 million within an interest rate of 3.75% for small businesses and 2.75% for non-profits
  • Term loans unsecured under $25,000 (loans over $25,000 require collateral)
  • Loan terms up to 30 years
  • Loans to be used for payroll, fixed debts, mortgage, rent, utilities, and other bills affected by COVID-19
  • Existing liens on assets for other loans will not result in automatic denial

Businesses that are ineligible for the EIDL include religious organizations, agriculture, gambling-related businesses, and charitable organizations.

SBA 7(a) Loans

This program is proposed under the economic stimulus package as a relief to any business with less than 500 employees dealing with cash-flow and operating interruptions because of COVID-19. These loans cannot be used to restructure debt or expand business operations. The loan apportionment formula is based on total monthly payments over the prior year (with exceptions for seasonal businesses). Details include:

  • 100% loan guarantee regardless of loan size
  • Maximum loan amount increased from $5 million to $10 million through Dec 31, 2020
  • Increase in express loans from $350 thousand to $1 million
  • Eligibility for loan forgiveness program if the loan is used on payroll, mortgage, interest, rent, or utilities, and payroll is maintained through June 1, 2020
  • Waiver of most upfront fees
  • Loosened reporting requirements

We Are Here to Assist You There are a number of other provisions that are aimed at providing debt relief for existing SBA borrowers. Needless to say, the stimulus will help small businesses weather this storm while incentivizing companies to retain employees and real estate. If you or any of your clients and partners are facing economic challenges from this virus, please reach out to the SBA. Diligentiam can assist in helping to get the required information together for anyone seeking SBA assistance. Diligentiam is happy to help in assisting companies seeking relief by coordinating with the right parties. We would also like to note that times like these call for out-of-the-box thinking when it comes to tax and financial strategies. Diligentiam’s experts will work with you or anyone in need to design ways to alleviate tax burdens and unleash cash within your business. Call our experts today.