CGA Law Firm has established an online resource center to provide guidance and address legal concerns arising from the rapidly evolving COVID-19 crisis. Resources include: a CGA Matrix of Business Resources (updated daily), Frequently Asked Questions, and CGA COVID-19 Updates addressing legal concerns.
CGA Law Firm’s Message to Business Clients
The Coronavirus Aid Relief and Economic Security Act (CARES Act) includes a number of programs to help small business owners. There are still details being worked out, but CGA Law Firm is here to answer common questions about the Paycheck Protection Program Loans that are now available under that law. These loans are a modification of the popular SBA 7(a) loan program for the specific purposes of assisting small businesses affected by COVID-19.
CGA LAW FIRM is supplying these Frequently Asked Questions to assist clients in navigating the challenging business environment due to the COVID-19 crisis.
PPP Loan Forgiveness Draft Worksheet
Banks will need the following financial information in order to process the SBA loan application. Note: This is just a draft worksheet to help you to begin collecting the information that you will need.
Frequently Asked Questions
Do I Qualify for The Small Business Stimulus Loans?
To qualify for SBA funding under this new program, you must be a small business as defined by the SBA. This includes:
- Small businesses or non-profit 501(c)(3) organizations with 500 or fewer employees
- Small businesses, 501(c)(19) veteran’s organizations or tribal concerns that meet the SBA size standards
- Sole proprietors or independent contractors
Businesses in the food or hospitality industry (NAICS code 72) may be eligible on a per-location basis.
In addition, the normal affiliation rules are waived for franchises or businesses receiving financial assistance from a Small Business Investment Company.
Note: In determining eligibility for these loans, the lender must consider whether the business was in operation on February 15, 2020; and had employees for whom the borrower paid salaries and payroll taxes; or paid independent contractors, as reported on the Form 1099–MISC. An ‘employee’ includes individuals employed on a full-time, part-time, or
I Don’t Have Employees. Do I Still Qualify?
Yes, you may. The CARES Act states: “…individuals who operate under a sole proprietorship or as an independent contractor and eligible self-employed individuals shall be eligible.” Applicants who fall in this category will need to provide documentation such as “payroll tax filings reported to the Internal Revenue Service, Forms 1099–MISC, and income and expenses from the sole proprietorship, as determined by the (SBA) Administrator and the (Treasury) Secretary.”
What If I Have A Franchise?
Franchises and hospitality businesses (NAICS code 72) with multiple locations, even if they have more than 500 employees, may be eligible on a per-location basis, as well as any businesses receiving financial assistance from a Small Business Investment Company (SBIC).
How Much Money Can I Borrow?
The basic answer is that the maximum loan amount is 2.5 times the average monthly payroll for the 12 months preceding the date the loan is made, up to a maximum of $10 million. However, if you are a seasonal business, you can apply to borrow 2.5 times your payroll for either the 12-week period beginning February 15, 2019 and ending May 10, 2019, or the period of March 1, 2019 through June 30, 2019.
What if you are a newer business? If you were not in business for the time period beginning on February 15, 2019 and ending on June 30, 2019, then you can use your average total monthly payroll costs incurred from January 1, 2020 to February 29, 2020 and multiply that by 2.5.
Payroll does not include salaries above $100,000 or qualified sick leave pay under the Families First Coronavirus Response Act. (See “What Does Payroll Include?” below.)
Is This the Free SBA Grant Money I Heard About?
No. The $10,000 advance is part of the Economic Injury Disaster Loan program, not Paycheck Protection Program Loans.
Where Can I Get One of These Loans?
Call your current bank first! As a guideline, banks are not taking on new customers during this crisis. If you cannot find a participating bank, call your attorney at CGA Law Firm for assistance.
What Can I Use the Funds For?
You can use the loan proceeds for:
- payroll costs.
- costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums.
- employee salaries, commissions, or similar compensations.
- payments of interest on any mortgage obligation (but not to pay principal or to prepay a mortgage)
- rent (including rent under a lease agreement).
- interest on any other debt obligations that were incurred before the covered period,
- refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020.
How Fast Can I Get a Loan?
This legislation was specifically designed to make these loans faster and easier for lenders to approve and fund. (Traditionally SBA 7(a) loans can take anywhere from a few weeks to a couple of months.) The relaxed standards are designed for fast approval, but keep in mind there will be unprecedented demand and lenders must implement the new rules.
How Fast Will I Have to Repay the Loan?
These loans have a maximum term of two years. You can prepay at any time without penalty.
What Is the Interest Rate and Fees?
The interest rate for these loans will be 1% for all lenders that make them. Normal 7(a) loan fees are waived.
Is there a Personal or Business Credit Check?
None is required.
Is There a Personal Guarantee?
No. There is no personal guarantee required. In addition, these will be non-recourse loans as long as proceeds are used for covered purposes. (Non-recourse means the government won’t be able to collect if you default.)
Is Collateral Required?
No. Normally SBA loans for more than $25,000 require collateral. That requirement is waived for these loans.
How Soon Do I Have to Start Making Payments?
Payments will be deferred for six months (though interest will accrue).
Do I Have to Prove I Can’t Get Credit Elsewhere?
No. Normally SBA loans require a “credit elsewhere” test to determine whether the borrower can get similar credit at another financial institution. This is waived.
How Do I Get Loan Forgiveness?
If you get one of these loans, you can request forgiveness of the principal portion of the loan for the eight-week period after you get the loan that covers:
- Payroll costs
- Interest on a mortgage
However, no more than 25% of the forgiven amount can be attributed to non-payroll costs.
Your loan forgiveness will be reduced if you decrease your full-time employee headcount. It will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annually in 2019. You may also receive forgiveness for additional wages paid to tipped workers.
- Payroll includes the costs listed under the section “What Does Payroll Include?” below.
- Forgiven debt will not be taxable.
- The mortgage, rent and utilities covered in this section must be in place before February 15, 2020.
Please Note: There are specific and technical calculations included in this section of the law, and you should not rely on this description to determine whether to keep employees, reduce employee wages or to determine your eligibility for loan forgiveness.
Do Independent Contractors Count as Employees?
No. Independent contractors can apply for a PPP loan on their own, so they do not qualify for purposes of a borrower’s PPP loan forgiveness.
Can I Apply for More Than One PPP Loan?
What Happens if PPP Loan Funds are Misused?
If you use PPP funds for unauthorized purposes, SBA will direct you to repay those amounts. If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud. If one of your shareholders, members, or partners uses PPP funds for unauthorized purposes, SBA will have recourse against the shareholder, member, or partner for the unauthorized use.
Keep good records of how you use these funds. Sloppy record keeping may prove costly!
What If I Have Already Laid Off Employees or Cut Pay?
If you have already laid off workers, you have until June 30, 2020 to restore full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.
(Note: CGA LAW FIRM emphasizes you should not rely on this description to determine whether to lay off or hire employees.)
What Does Payroll Include?
The CARES Act states that payroll includes:
- Salary, wages, commissions or similar compensation,
- Payment of cash tips or equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips),
- Payment for vacation, parental, family, medical, or sick leave.
- Allowance for dismissal or separation.
- Payment required for the provisions of employee benefits including insurance premiums.
- Payment of any retirement benefit.
- Payment of State or local tax assessed on the compensation of employees; plus
- For sole proprietors or independent contractors, wages, commission, income, or income from net earnings from self-employment, or similar compensation.
It does not include:
- The compensation of an individual employee over an annual salary of $100,000, as prorated for the covered period*.
- Federal employment taxes imposed or withheld between February 15,
2020and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees. Note: as of 04/04/2020, this piece is still under consideration.
- Any compensation of an employee whose principal place of residence is outside the United States.
- Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.
*Note: For annual salaries above $100,000, use $100,000 for the salary of that individual when calculating payroll.
What Do Utilities Include?
Utilities include electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020. The definition of utilities is still under debate for the SBA.
How Do I Document Payroll?
You must submit documentation such as payroll processor records, payroll tax filings, or Form 1099- MISC, or income and expenses from a sole proprietorship. For borrowers that do not have any such documentation, the borrower must provide other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount.
Are There Disqualifiers?
Yes. You are ineligible for a PPP loan if, for example:
- You are engaged in any activity that is illegal under federal, state, or local law.
- You are a household employer (individuals who employ household employees such as nannies or housekeepers).
- An owner with 20 percent or more of the equity is incarcerated, on probation, on parole; presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of a felony within the last five years; or
- You, or any business owned or controlled by you or any of your owners, have ever obtained a direct or guaranteed loan from SBA or any other Federal agency that is currently delinquent or has defaulted within the last seven years and caused a loss to the government.
What’s the Difference Between the Paycheck Protection Program and Disaster Assistance loans?
The CARES Act includes a number of relief programs for small businesses. The one we are focusing on in this article is the Paycheck Protection Program Loans. As part of the new law, businesses will be able to more easily get certain SBA guaranteed 7(a) loans. Borrowers will then be able to apply for forgiveness of certain portions of the loan if they meet requirements by keeping employees on payroll.
The Economic Injury Disaster Loan is a separate loan altogether and you apply directly to the SBA, not to individual lenders.
Can I Apply for This Loan and Disaster Assistance?
Yes, but you cannot “double-dip” and get funds from both loan programs for the same purpose. Furthermore, according to the Interim Rules, “If you received an SBA EIDL loan from January 31, 2020 through April 3, 2020, you can apply for a PPP loan. If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.”
This guidance does not address what happens if you applied for an EIDL before April 3, 2020 but received one after that date.
Can I Apply For This Loan and the Payroll Tax Credit?
There is a payroll tax credit of up to 50% of qualified wages for certain businesses whose operations have been fully or partially suspended by a government order or whose gross receipts in a quarter have fallen by at least half compared to a similar quarter the year before.
Your business cannot receive both the Employee Retention Payroll Tax Credit and a Paycheck Protection Program Loan, so if you are considering both make sure you consult with your legal or financial advisor.
What Happens When The CARES ACT Funds Run Out?
The approved CARES ACT Law allocates a total of $376 Billion for the three (3) key relief programs. Broken down by program, the summary is:
Paycheck Protection Program: $349B
EIDL Loan Grants: $10B
SBA Debt Relief: $17B
Total for 3 programs: $376B
(The small business funding constitutes 19% of the $2T law)
CGA Law Firm predicts that this money will be depleted during the week of April 6, 2020. The federal government is working on the next steps to continue funding the CARES ACT. CGA Law Firm will continue to stay abreast of the federal government response to the COVID-19 crises. And CGA Law Firm will continue to keep its clients and partners apprised of relevant changes.
I am the treasurer for a church 501(c)(3) — What are the guidelines for relief application?
GCA has been working with a partner who is writing both EIDL and PPP relief applications for faith-based organizations. Please contact your CGA Attorney for more information. As a community service CGA is offering the following link:
I am the owner of a farm and struggling to keep abreast of the situation. What are my options?
CGA Partners with the United States Department of Agriculture (USDA) to provide relief to its clients in this industry. CGA can schedule a meeting (phone conference) with a USDA representative to discuss your issues. We have attached some information in our resource section related to the USDA programs for agriculture relief. Please contact your CGA Attorney to schedule a teleconference meeting with the USDA that can occur within 2-5 business days.
I have applied for the EIDL relief and also the PPP. I have not received any funds as promised for the EIDL in the bank account to-date?
‘CGA LAW FIRM is monitoring this situation very closely. CGA is in contact with numerous local banking institutions (7+ Banks) and will continue to keep this Frequently Asked Questions section up-to-date. Unfortunately, the EIDL’s promise of 3 business days has been not met, but CGA believes that the SBA/ US Treasury is doing
Regarding the Paycheck Protection Program, CGA understands many rumors are spreading about the Banks’ reaction to this program. CGA will continue to obtain factual feedback and update this site when we have actual knowledge of the status. If you have immediate needs or questions, please contact your CGA Attorney.
A Disclaimer from CGA Law Firm:
Please keep in mind this information is changing rapidly and is based on our current understanding of the programs. The laws, policies, and guidelines can and are likely to change. Although CGA will be monitoring and updating this as new information becomes available, please do not rely solely on this website for your legal, financial and personal decisions. CGA Law Firm encourages you to consult with your lawyers, CPAs,
COVID-19 Business Assistance Programs Matrix
SBA Economic Injury Disaster Loan Assistance Program (EIDL)
|Eligibility||For any business with less than 500 employees or that meets SBA business size standards based on NAICS code (check size eligibility at www.sba.gov/size-standards/ ). Apply directly to the SBA at https://disasterloan.sba.gov/ela/, no Lender needed. WARNING: There are scammers calling businesses and charging them to apply for these Emergency loans. There is no application fee to apply to SBA or to Lenders for any of these Emergency loans.|
|Maximum Amount||Up to $2 million. The loan amount will be the amount of economic injury to the business, as determined by the SBA from the application info. Up to $25,000 unsecured.|
|Use of Funds||Working capital needs (payment of fixed debts, payroll, accounts payable, employee sick leave and other bills.|
|Term||Up to 30 years|
|Payment||SBA determines based on repayment ability. No payment for 12 months|
|Interest Rate||For-profit businesses: 3.75%. Non-profits: 2.75%|
|Conditions||The size of affiliated businesses may apply. Personal Guarantee only required for loans above $200,000, but no lien on personal home. 2019 taxes do not have to be filed, but Form 4506T needs to be provided.|
|Collateral||A UCC lien will be placed against the business assets.|
|Loan Forgiveness||Up to $10,000 in advance funds can be selected in the application and is eligible for loan forgiveness. These funds will be expedited to applicants and will be based on $1000 per employee up to the $10,000 advance limit.|
|Eligible Expenses||See Use of Funds. Insured losses not eleigible.|
|Info Needed for Application||Business revenue & expense numbers for 1/31/19 to 1/31/20, 3 years monthly sales numbers, income documentation, any other compensation received & Bank acct# & routing#.|
|Application Process||Follow application instructions at https://covid19relief.sba.gov/#/|
|Fees and Costs||No application fees, but may be some closing costs.|
|Application Tips||Complete all sections. Applications with missing items will be notified, but sent to the back of the line. Write down your application#. Click the box for the $10,000 advance payment, no repayment required on this advance, which is to be distributed within 3 days of application processing date. Best to apply for maximum $2 million, SBA will adjust loan amt. based on application info.|
|Cautions||If a business has any current loans thru Lenders, check with the Lender to make sure there are no loan conditions preventing obtaining additional debt.|
SBA Paycheck Protection Program (PPP)
|Eligibility||For any business with less than 500 emloyees. Apply to approved SBA Lenders.|
|Maximum Amount||The lesser of: 2.5 times the employer’s average monthly payroll costs, measured over the prior twelve months or $10 million.|
|Use of Funds||Payroll costs, health care benefits, mortgage interest obligations, rent, utilities, interest on other debt incurred prior to 2/15/20.|
|Term||Any remaining balance after loan forgiveness is amortized over a 2 year term|
|Payment||No payment for 6 months. Payment determined by amortization.|
|Interest Rate||0.5% on loan balance remaining after any loan forgiveness.|
|Conditions||The business must have been in operation as of 2/15/20 and was paying wages to employees. Business and owners cannot be in Bankruptcy or disbarred from govt programs.|
|Collateral||No collateral required. No personal guarantee required.|
|Loan Forgiveness||For eligible expenses paid during 8 weeks after the loan closing date.|
|Eligible Expenses||See Use of Funds.|
|Info Needed for Application||Avg. monthly payroll costs, number of employees, payroll tax reports, employee wage, benefits, tax returns, financial statements, and retirement plan info to give to the Lender.|
|Application Process||Applications to Lenders start 4/3/20. Independent contractors and self-employed can apply to Lenders on 4/10/20|
|Fees and Costs||No application fees, but may be some closing costs.|
|Application Tips||Complete all sections. Applications with missing items will be notified, but sent to the back of the line. Write down your application#. Do NOT apply for more than 1 PPP loan, under penalty of the law. Amount of loan forgiveness will not be considered as taxable income by the IRS.|
|Cautions||Loan forgiveness may be reduced if employees are reduced during the loan term. If you have applied for an EIDL loan, you can still apply for a PPP loan, but the loans can not be used for the same expenses.|
SBA Emergency Express Bridge Loan (EBL)
|Eligibility||For businesses that meet the SBA small business size standards. Apply to approved SBA Express Lenders that the business had a banking relationship with prior to 3/13/20.|
|Maximum Amount||Up to $25,000.|
|Use of Funds||Loan proceeds must be used by the borrower for operational expenses to support the survival and/or reopening of the business.|
|Term||Up to 7 years.|
|Payment||Lender determines payment based upon loan amortization.|
|Interest Rate||Negotiated with Lender, up to Prime + 6.5%|
|Conditions||The business must have been in operation as of the Presidential COVID Emergency Declaration of 3/13/20. The SBA "credit elsewhere" requirement applies. Standard SBA underwriting guidelines apply.|
|Collateral||No collateral required.|
|Eligible Expenses||Operational expenses for the survival or reopening of the business.|
|Info Needed for Application||Standard credit underwriting documentation applies, per Lender requirements.|
|Application Process||Apply to approved SBA Express Lenders that the business had a banking relationship with, as of 3/13/20. Standard forms apply.|
|Fees and Costs||Application fee is the greater of 2% of the loan amt. or $250.|
|Application Tips||Apply only to approved SBA Express Lenders that the business had a banking relationship with prior to 3/13/20.|
|Cautions||Minimum FICO SBSS business credit score is 130. Cannot be used for Line of Credit.|
Federal Reserve – Main Street Business Lending Program
|Eligibility||Not accepting applications yet, but coming soon. Apply to eligible participating Lenders. For companies with up to 10,000 employees OR companies with less than $2.5 billion in revenues. Apply to a participating Lender.|
|Maximum Amount||Minimum loan: $1 million. Maximum loan: $25 million OR an amount that “when added to the Eligible Borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the Eligible Borrower’s 2019 earnings before interest, taxes, depreciation, and amortization,” whichever is less.|
|Use of Funds||Must be used for costs to retain 90% of employees.|
|Term||4 year term|
|Payment||Payment determined by loan amortization. No payment for 12 months.|
|Interest Rate||2.51% to 4.01%|
|Conditions||Borrowers must commit to make reasonable efforts to maintain payroll and retain workers. Borrowers must also follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under the CARES Act. Firms that have taken advantage of the PPP may also take out Main Street loans. Only companies organized in U.S. with majority of employees in U.S. are eligible.|
|Collateral||No collateral required.|
|Eligible Expenses||Mainly for payroll costs for wages and benefits to retain employees.|
|Info Needed for Application||Application not established yet|
|Application Process||Not established yet|
|Fees and Costs||Not An Eligible Lender will pay a facility fee of 1% of the principal amount of the loan. The Eligible Lender may require the Eligible Borrower to pay this fee. An Eligible Borrower will pay an Eligible Lender an origination fee of 1% of the principal amount of the Eligible Loan.|
|Cautions||* The company cannot outsource or offshore jobs for the term of the loan plus 2 years. The Eligible Lender must attest that the proceeds of the Eligible Loan will not be used to repay or
refinance pre-existing loans or lines of credit made by the Eligible Lender to the Eligible Borrower.
• The Eligible Borrower must commit to refrain from using the proceeds of the Eligible Loan to repay other loan balances. The Eligible Borrower must commit to refrain from repaying other debt of
equal or lower priority, with the exception of mandatory principal payments, unless the Eligible Borrower has first repaid the Eligible Loan in full.
• The Eligible Lender must attest that it will not cancel or reduce any existing lines of credit outstanding to the Eligible Borrower. The Eligible Borrower must attest that it will not seek to cancel
or reduce any of its outstanding lines of credit with the Eligible Lender or any other lender.
• The Eligible Borrower must attest that it requires financing due to the exigent circumstances presented by the coronavirus disease 2019 (“COVID-19”) pandemic, and that, using the proceeds of
the Eligible Loan, it will make reasonable efforts to maintain its payroll and retain its employees during the term of the Eligible Loan.
Other Business Programs & Resources
|Eligibility||Not accepting applications yet, but anticipated to open soon. Lender required.|
|Maximum Amount||USDA: For businesses in rural areas still operating without interruption, USDA Lenders are still accepting applications for the USDA B&I program for loans up to $25 million. USDA is also offering 6 month payment deferments for existing B&I borrowers.|
|Use of Funds||• Offering small loans to cover mortgage payments for up to six months|
|Term||• SBA will allow payments to be deferred for up to six months|
|Payment||• Ask your Lender for: Interest-only payments for three to six months
• Deferred payments for three to six months
|Interest Rate||• Interest rate reductions|
|Conditions||• Ask your Lender to make CDs available to be withdrawn with no early penalties
• Refraining from reporting late payments to credit rating agencies for 90 days
|Collateral||* For assistance for farm businesses, contact your local Farm Service Agency county office. Visit https://offices.sc.egov.usda.gov/locator/app?state=pa&agency=fsa for FSA contact information.|
US Chamber of Commerce Save Small Business Program
|Eligibility||For businesses with 3 to 20 employees located in Distressed Communities. The grant application will be available at: www.savesmallbusiness.com/ on Monday, April 20, 2020 at 3:00 pm eastern time.|
|Maximum Amount||$5,000 Grant. Enter your business zip code, as listed on your W-9 form, at www.savesmallbusiness.com/ to see if your business is located in an eligible Distressed Community.|
|Use of Funds||Funds must be used towards business expenses impacted by the Covid-19 crisis.|
|Term||Grant funds, not a loan.|
|Payment||Grant funds, no repayment required.|
|Interest Rate||Grant funds, not a loan.|
|Conditions||Business must employ between 3 and 20 people (including owners but not including independent contractors). Business must be located in a Distressed Community as determined by the EIG Distressed Communities Index. The business has been harmed financially by the Covid-19 crisis.|
|Collateral||No collateral required.|
|Loan Forgiveness||Grant funds, not a loan.|
|Expenses Eligible||Funds must be used towards business expenses impacted by the Covid-19 crisis.|
|Info Needed for Application||Business zip code from IRS W-9 form to determine eligibility.|
|Application Process||The grant application will be available at: www.savesmallbusiness.com/ on Monday, April 20, 2020 at 3:00pm eastern time.|
|Fees and Costs||No application fees.|
|Application Tips||Apply as soon as possible after 3pm on Monday, April 20th at www.savesmallbusiness.com. The amount of total funds available has not been disclosed, but is expected to be used quickly.|
|Cautions||These are private funds, not government funds, from the U.S. Chamber of Commerce Foundation and a coalition of private business partners. The grants will be awarded on a weekly basis, based on amount of funds available. The total amount of grant funds available has not been disclosed.|