Are you a small business that has heard about Small Business Association (SBA) loan, but doesn’t know where to start? Or if you’re even eligible? With all the misinformation circulating about the SBA loan, we have broken down the facts so small businesses can be best prepared during this time, including who is eligible, how to calculate the amount you might receive, how the loan can be used, terms of the loan, the loan forgiveness program, and application.
SBA loans will be expanded according to recent legislation allocating $349 billion to this program. The eligibility requirements are being relaxed to extend credit to small businesses to help maintain payroll and pay bills (ex. rent, mortgage interest, other interest, utilities) during the ‘covered period.’ Regulations (expected to be final by the first of April) are expected to allow almost any FDIC insured entity to process loans and disburse funds on the same day.
When is the ‘covered period’? The ‘covered period’ includes loans made between February 15, 2020 and June 30, 2020. Loans issued during this time are ‘covered loans.’
How do I know if I’m an eligible recipient of a covered loan? Small businesses (fewer than 500 employees or under the SBA NAICS industry guideline, whichever is greater) that have been in operations since February 15, 2020 are eligible for the loan. You must have employees that are paid salaries and payroll taxes and/or pay independent contractors (1099-MISC). Note, if you are a sole proprietor or independent contractor, you are also eligible to receive a ‘covered loan’ providing certain documentation.
CALCULATION OF LOAN AMOUNT
What is the maximum loan I can apply for? The maximum amount you can apply for is the lesser amount of the following options:
(Avg. monthly payroll cost X 2.5) + (Outstanding SBA loans after January 1, 2020)
What do payroll costs include? The sum of payments for any employee compensation; examples include:
If I’m a sole proprietor or independent contractor, how can I calculate payroll costs? In this situation, payments of compensation cannot exceed $100,000 in one year, and are pro-rated for the ‘covered period.’
What do payroll costs NOT include? The following items are not considered payroll costs:
USE OF LOAN PROCEEDS
What can I use the loan for? The SBA loan can be used to cover the following:
TERMS OF LOAN AND THE PROCESS OF SECURING THE LOAN
Who has the authority to delegate a loan? Approved SBA lenders are able to make and approve ‘covered loans.’
What are the borrower requirements? The borrower requirements include a “good faith certification” stating that uncertain economic conditions make the loan necessary to support ongoing operations. These funds will be used to retain workers and maintain payroll, rent payments, mortgage interest payments, and utility payments. It also is in good faith that the applicant DOES NOT have an application pending for a loan under a 7a loan for the same purpose and duplicative amounts, and no other amounts have been received under section 7a loans between February 15, 2020 and December 31, 2020.
Will I be able to obtain credit elsewhere? The requirement that small businesses are unable to obtain credit elsewhere DOES NOT APPLY to ‘covered loans’ during the ‘covered period.’
What about 7(b)(2) loans? 7(b)(2) loans made after January 31, 2020 can be refinanced as part of the ‘covered loan.’
Will there be nonrecourse? Or collateral needed for this loan? SBA has no recourse (or will demand compensation or payment) against individuals, shareholders, members, or partners of an eligible recipient unless the ‘covered loan’ proceeds are used for unauthorized purposes (see above). There are no personal guarantee requirements and no collateral requirements for ‘covered loans.’
What about the interest rate? Interests rates for the SBA loan are not to exceed 4%.
Is there a deferred payment arrangement? Lenders must provide complete payment deferral for a period of not less than six months, including payment of principle, interest, and fees. Deferrals are not to exceed one year.
LOAN FORGIVENESS PROGRAM
Is there a forgiveness amount? Any possible forgiveness amount may not exceed the loan amount, and is calculated as the following amount of costs and payments made during the eight-week period beginning on the date of origination of the ‘covered loan’ (‘covered period’):
What is the forgiveness amount limited by? The forgiveness amount is limited by the following:
LOAN FORGIVENESS APPLICATION
What should my application include? The application should include documentation verifying the number of FTEs and pay rates during the ‘covered period’ including:
The application should also include certification stating:
Crow Shields Bailey is proudly serving as a resource for small businesses to protect for their future during this time. If you have further questions about how the SBA loan can benefit your business, feel free to contact our office 251.343.1012, or visit our Coronavirus Resource Center to stay up-to-date on changes made daily.