Businesses looking for financial relief from the impact of the coronavirus pandemic naturally welcomed President Trump’s signing of the $2 trillion stimulus package this past weekend.
For the past few weeks, tens of thousands of companies have been forced to lay off workers, not knowing when the stay-at-home mandates and other safety measures will be lifted.
One of the most welcome provisions was a $349 billion paycheck protection program designed to provide small companies funds to retain their payrolls.
Borrowers with less than 500 employees can apply for up to $10 million. For any loan amounts not forgiven, the maximum will have a maturity of two years and a 0.5% interest rate. There are no loan fees or prepayment fees.
That’s the good news. The bad news is that details aren’t final, and finding out how to secure those funds hasn’t been easy.
“Parsing the legislation, reading articles, participating in law firms’ webinars and submitting applications is painful and time-consuming; in my experience, most worthwhile things are,” Eric Ersher, CEO of Zoup!, a collection of locally owned neighborhood eateries specializing in soups, salads, sandwiches and bowls, said in an interview. “I am guardedly optimistic that this too will be worthwhile to our industry, our franchisees and those similarly situated during unprecedented time.”
Here is what we know, so far
The Treasury Department announced Tuesday that borrowers may apply for loans on April 3 to cover payroll and other expenses through existing Small Business Administration lenders.
A list of lenders is supposed to be available at the SBA website, www.sba.gov, but PNC — a bank planning to provide loans for the paycheck protection program loans — told this website Tuesday that the applications were not yet available.
That isn’t preventing many business owners from trying to take advantage of the paycheck protection program. What makes it appealing is that the loan is potentially 100% forgivable, said John Fekete, a partner at Baratz & Associates P.A., a Marlton, New Jersey-based accounting firm.
“You can get a $5 million loan as long as you do the right thing — pay your employees, hire everybody back at a certain date,” Fekete said during an interview with this website. “That $5 million loan gets wiped off the books. And it’s a non-taxable event.”
Although most of the big banks will participate, Fekete said the problem now is that they are not prepared to accept the applications yet because they don’t have all their paperwork together.
“The really small businesses don’t have a clue as to what’s going on and how to get the resources,” he said. “We’ve been hearing from all of our small business clients.”
How to get started
Eight weeks of payroll, rent, mortgage and utilities are forgivable under the PPP loan if the employer maintains their payroll, according to the Treasury Department. Small businesses will be able to apply if they were harmed by COVID-19 between Feb.15, 2020 and June 30, 2020.
Businesses wanting to apply should start with their current banks.
“Most likely they’re going to be able to help you in this process,” Fekete said. “The problem is there is a delay between them (the government) passing this law, and then, the SBA giving the banks the proper guidance and regulation to administer the loan application.”
According to a summary from Alloy Silverstein, a Cherry Hill, New Jersey, accounting and advisory firm, PPP loan applicants will need to provide documentation verifying the number of employees and pay rates, unemployment insurance, IRS and state tax filings.
Which loan(s) is best for my business?
Up until Tuesday’s Treasury Department announcement, potential borrowers could easily confuse the PPP loans with other SBA loans designed to provide COVID-19 relief, such as Economic Injury Disaster Loans. Those launched in January and have a $2 million limit.
Business owners could easily be misled by a section of the SBA website under the heading, “Disaster Loan Assistance” containing the subhead, “COVID-19 Economic Injury Disaster Loan Application.”
Although both the disaster loans and the paycheck protection program are SBA mechanisms to help companies weather the COVID-19 outbreak, the EIDLs are better for businesses that have discontinued operations, said Angela Venti, director of practice growth at Alloy Silverstein.
No payment is due on the low-interest loans for 12 months from the time they originate, and companies are eligible if they have been in operation since Jan. 31, 2020.
In addition, borrowers cannot use a PPP loan for the same purpose as other SBA loans.
Zoup! plans to take advantage of both the PPP and EIDL loans, Ersher said.
“Generally, the PPP will be used for short term working capital, i.e., employee wages and operating costs,” he said. “The EIDL is long-term debt and will be used for store renovations and growth-oriented initiatives.”
What is an Emergency Economic Injury grant?
The SBA is also offering COVID-19 relief through Emergency Economic Injury grants, which provide an emergency advance of up to $10,000, Venti said.
To get the emergency economic industry grant, the borrower must first apply for the EIDL and request the advance, which does not need to be repaid and can be used to cover payroll cost, expenses caused by supply chain disruptions, debts, rents and mortgage payments. The emergency grants are available through Dec. 31, 2020. Those who have already applied for EIDLs are eligible for the grants, which are backdated to Jan. 31, 2020.
Borrowers who have already taken SBA loans are being notified the SBA is waiving six months’ worth of principal and interest, Venti said.
“If you already have a loan with them (the SBA), they will make six months’ (worth) as a grant,” she said. “It’s literally six months of a breather.”
It is also possible to take the emergency grant and apply for a loan, Venti said.
“The SBA will know that you received the $10,000 (emergency grant), but it does not exclude you then applying for the economic injury (disaster loan),” she said. “That (grant) will be an immediate relief.”
The grants will process faster than the loans because there’s been such a large number of loan applications, according to Venti.
Businesses that took out an Economic Injury Disaster Loan between Feb. 15 and June 30 can also refinance the EIDL loan into a PPP loan, she said.
In the meantime, businesses impacted by the coronavirus pandemic need to get up to speed on the various SBA plans.
“We’re shoulder-to-shoulder with our franchise owners and providing them information on the PPP and EIDL, among other operations changes and best practices, via frequent webinars,” Zoup!’s Ersher said. “However, they, like us, need to lean on our professional advisors, specifically our banker and accountant. While complex and highly regulated including that the use of funds from PPP versus EIDL must be distinct, our passionate plea to our franchisees is to take action and submit their applications now.”
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