Small Business Loans During Corona Virus Period

abril 11, 2020

CARES ACT: Grants and Loans for Small Business

The Federal government has enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was just passed by Congress.

The relief program aims to help small businesses survive through this difficult Corona Virus shutdown period. The Corona Virus Aid program is for landlords and property management companies in business on February 15, 2020.

Rent Assistance for Tenants

The CARES Act also provides help for your tenants, and this is something they should be made aware of. CARES creates an additional 13 weeks of unemployment benefits for unemployed workers through December 31, 2020, along with an additional $600 per week per individual.

This benefit includes those not traditionally eligible for unemployment benefits (self-employed, independent contractors, those with limited work history and other individuals) who are unable to work because of the COVID-19 emergency.

CARES also creates an advanced tax refund, or “recovery rebate” direct payment program for individuals and families, of up to $1,200 per individual and $2,400 per couple plus $500 per child.

Corona Virus Programs for Landlords, Property Management Companies and other Small Businesses

This Federal aid initiative for small businesses covers several new programs listed below. These aim to help landlords, property management companies and many other rental industry related businesses. The CARES Act includes:

the paycheck protection program,
the Emergency Economic Injury program
the small business debt relief program

These are described further below. Please note that this information is provided as a courtesy to our readers. The details and actual qualifications of the program are listed on the CARES Act Website. Please do send our Covid 19 cleaning tips for tenants and introduce them to Covid 19 disinfection technology. It can help to keep them safe.

CARES ACT. Screenshot courtesy of SBA.gov.

Evictions, Credit Reporting and Lease Terminations

As part of the CARES Act, a number of prohibitions were put in place to protect all parties during this difficult time.

Landlords and property management companies who furnish to credit reporting agencies (like apartment firms, credit card companies, etc.) and agree to modified (rental) payments with respect to an obligation or account of a renter who has been affected by illness or unemployment via COVID-19, must report the obligation or account as “current.”

CARES creates a moratorium on evictions for 120 days (4 months) from act enactment. Tenants cannot issue a notice to vacate to the landlord until after the expiration of the moratorium.

This tenant credit protection will end 120 days after enactment of the legislation or 120 days after the date the national Corona Virus emergency declaration is terminated. Tenants should be notified that they are still responsible for paying their rent according to the signed lease.

Which Businesses Qualify for the CARES Act?

The Federal government has a list of requirements to qualify for the CARES program:

companies must have been in operation on February 15, 2020
individuals who operate a sole proprietorship or are independent contractors and other eligible self-employed persons
does not employ more than 500 employees per physical location and which have a NAICS business code beginning with 72
franchises who are assigned a franchise identifier code by the small business administration (to ensure yours is a small business)
non-profits of 500 employees or less

There are numerous details and requirements which can discover on The CARES act guide document.

Paycheck Protection Program (PPP)

The PPP loan program provides cash-flow assistance through 100% federally guaranteed loans to employers who maintain their payroll during this emergency. It is designed to help businesses stay intact and ready to return to normal business operations after the emergency period.

Those small businesses, landlords, property management companies and contractors in business on February 15, 2020 may qualify.

If employers maintain their employee payroll, the loans provided would be forgiven. PPP has a host of attractive features, such as forgiveness of up to 8 weeks of payroll based on employee retention and salary levels, no SBA fees, and at least six months of deferral with maximum deferrals of up to a year.

What’s Covered and What Isn’t

The maximum loan size within all PPP loan programs is $10 million. Costs that are covered include employee wages, vacation pay, sick leave, allowance for dismissal or separation, group health care benefits and premiums, rent, utilities, already existing debt obligations, retirement benefit payments, and state and local taxes assessed on employee compensation.

Costs which aren’t covered under the CARES PPP program include: owner/employee compensation above $100,000, taxes withheld under chapters 21, 22 and 24 of the IRS code, compensation of employees living outside the US, and qualified sick and family leave which has a credit from the Families First Corona Virus Response Act.

Any PPP loan amounts not forgiven are carried forward as an ongoing loan with max terms of 10 years, at a maximum interest rate of 4%. Principal and interest will be deferred, for 6 months to 1 year after pay out of the loan.

Types of SBA Loans for Small Business

SBA offers a variety of small business loans during the Covid 19 relief period.

Standard Loan

On a standard loan, SBA guarantees 85% of loans up to $150,000, and 75% for loans above 150,000. The maximum amount small business owners can borrow is $5 million. SBA states a 5 to 10 day loan turnaround time.

For loans up to $25,000, lenders aren’t required to demand collateral for loans up to $25,000. However, on loans above $350,000, the SBA requires the lender secure collateral to the maximum extent possible up to the loan amount.

Small Loans

For a Small Loan as it’s called, of up to $350,000 SBA guarantees 85% on loans up to $150,000 and 75% on loans above $150,000. Lenders and borrowers can negotiate the interest on the loan.

SBA Express Loans

The SBA express loan has a fast turnaround time on loans of up to $350,000. The SBA guarantees 50% and borrowers and lenders can negotiate the interest rate.

Revolving Lines of Credit

These offer up to 7 years of use with maturity extensions permitted. Turnaround is 36 hours. Lenders use their own forms and procedures and are not required to demand loan collateral on loans up to $25,000. They can use their own collateral policy for loans more than $25,000 and up to $350,000.

Export Express Loans

With Export Express loans, the maximum amount is $500,000 for which SBA guarantees 90% of loans less than $350,000, and 75% on loans above $350,000. Borrowers and lenders negotiate the interest. Term may not exceed 7 year. Response time is 24 hours.

Export Working Capital Loans

These loans have a maximum amount of $5 million. Lenders and borrowers can negotiate their own interest rate. Turnaround time is 5 to 10 business days.

International Trade Loans

These loans have a maximum amount of $5 million and SBA guarantees 90%. Lenders and borrowers can negotiate their own interest rate. Turnaround time is 5 to 10 business days. The loan matures in 10 years for working capital and machinery, and 25 years for real estate.

Veterans Advantage Program

Veteran owned businesses qualify for SBA loans at a reduced fee.

Cap Lines Umbrella Program

This loan helps businesses meet their short term and cyclical working capital needs such as inventory, accounts receivable. or can cover the direct labor and material cost associated with your contracts.

Small Business Debt Relief

Besides a huge or complete loss of revenue and cash flow, debt payments are a very big concern for small businesses.

This program will provide immediate relief to small businesses with: non-disaster SBA loans, i.e., 504, and microloans. SBA will cover all loan payments on these SBA loans, including principal, interest, and fees, for 6 months.

Economic Injury Disaster Loans & Emergency Economic Injury Grants

Economic Injury grants will provide an emergency advance of up to $10,000 to small businesses and private non-profits harmed by COVID-19. These will be issued within three days of applying for an SBA Economic Injury Disaster Loan (EIDL).

Applicants for the EIDL Program can request a $10,000 advance and have it sent within 3 days. Note: borrowers may not commingle multiple SBA loan types.

These advances or grants can be applied for via an EIDL and then by requesting the advance. You are not required to repay the grant under any circumstance. It can and should be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or to meet your business obligations, including debt payments, business rent and mortgage payments.

EIDLs are low interest loans of up to $2 million where principle and interest are deferred at the government’s discretion, for costs/expenses that could have been paid if the Corona Virus disaster had not happened. It includes payroll and operating expenses.

Those companies eligible for an EIDL include:

sole proprietor small businesses
independent contractors
cooperatives and employee owned businesses
tribal small businesses
non profit businesses with an effective ruling letter from the IRS or with proof from your state government that you are a valid non profit

Further information sources:

PPP application: https://www.sba.gov/sites/default/files/2020-04/PPP%20Borrower%20Application%20Form.pdf

SBA Loan Guidance: https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources

Treasury Department PPP: https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses

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