This article is the marvelous work of our current law clerk Kieran O’Day, who will be finishing his stint with us shortly and heading on to clerk with the Supreme Court for the State of Wisconsin!
In a recent post, Attorney Jeremy Klang discussed the Paycheck Protection Program (PPP) loans under the CARES Act. This post will serve as an update regarding how the PPP and the Emergency Injury and Disaster Loans (EIDLs) interact. Head to the Business Law Blog for our other posts regarding COVID-19’s effects on the legal and business worlds particularly as those effects relate to Wisconsin businesses.
Who can apply?
Applicants for both loans must be adversely affected by COVID-19.
· Businesses with fewer than 500 employees;
· most non-government, not for profit businesses; and
· sole proprietors and independent contractors.
· Businesses with fewer than 500 employees;
· non-government, not for profit businesses; and
· sole proprietors, self-employed individuals, and independent contractors
How much are businesses eligible for?
· Up to $2,000,000 with up to a $10,000 advance grant.
· Businesses should receive this grant regardless of the status of their overall application.
· Up to $10 million, but
· it is limited to 2.5 times the business’ average total monthly payments for payroll costs during the 1-year period before the date of the loan.
There has been a bit of confusion regarding the amount of the $10,000 businesses will be eligible for. The SBA has not provided official guidance on how it will determine the amount businesses are eligible for.
A since-removed bulletin from the Massachusetts SBA field office stated that the advance will be capped at $1,000 per employee. For example, if this ends up becoming the cap employers with five employees will only get a $5,000 advance. However, there has not been an official announcement from the SBA. We will keep this section up to date as more information becomes available.
What we do know about the advance is that while it does not need to be repaid, it will be subtracted from the forgiveness amount of the PPP if a business receives a PPP loan.
What are the terms?
An underlying term that affects both of these loans is that the CARES Act prohibits borrowers who obtain both loans from using the loans for the same purposes.
· Interest rates are 3.75% for for-profit businesses and 2.75% for nonprofits.
· Loans can be set at a maximum of 30-year terms and payments are deferred for one year.
· Can be forgiven up to the amount a business spends in the 8-week period following the origination of the loan provided the funds are used for payroll costs, interest on mortgage obligation, rent and utility payments, interest on other debt obligations incurred before February 15, 2020.
· To have amounts forgiven, the amount spent on non-payroll costs cannot be greater than 25%.
· The interest rate on any non-forgiven amount is 1%.
· The remaining loan amount after forgiveness is set at a 2-year term and payments are deferred for six months.
What can the loans be used for?
· Pay fixed debts
o This includes sick leave. It is currently unclear whether the same restriction under the PPP applies regarding FFCRA leave.
· Accounts payable
· Other operating expenses that could have been paid but for the pandemic
· Payroll costs
o This includes sick leave except for leave for which a credit is allowed under section 7001 of the FFCRA or qualified leave under section 7003 of the FFCRA.
· Interests on mortgage obligations incurred before February 15, 2020
· Rent, under lease agreements in force before February 15, 2020
· Utilities, for which services began before February 15, 2020
Note that the approved uses for each loan generally overlap. Again, the loans cannot be used for the same purposes, so if a business receives both loans it will have to carefully analyze which loan is used for specific purposes.
Required documentation and other information
· Required Documents
o Loan Application
o Tax Information Authorization (IRS Form 4506T)
o Personal Financial Statement
o Schedule of Liabilities
· Personal guarantees may not be required for loans less than $200,000.
· Collateral is not required for loans less than $25,000.
· Loan is administered by the SBA.
· SBA will not require first-year tax returns, will not require other credit could have been obtained elsewhere, and approval can be based on credit score.
· If funds are available, these loans can be applied for up until December 31, 2020.
· Required Documentation
o Certification that the business was in operation on or before February 15, 2020
o Certification that the business had employees
o Verification of average monthly payroll costs
· PPP loans are administered by individual lenders. See this link for a list of Wisconsin lenders.
· Collateral is not required.
· Personal guaranty is not required.
· No requirement for seeking credit elsewhere.
· If funds are available, these loans can be applied for up until June 30, 2020.
The SBA is providing much needed financial support for small businesses across the country through the EIDL and PPP. We will continue watching for guidance as it comes down from the federal government. Follow our COVID-19 blog posts on www.wisconsinbusinesslawblog.com/. Please contact our offices at 262-785-1800 or visit our website www.schoberlaw.com to talk to the business law attorneys regarding the EIDL or PPP or any other business law questions related to COVID-19.