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Business Guide to Coronavirus Stimulus Package: Business Loans

Way through

If you run a business, then you are trying to formulate a strategy for getting through the Covid-19 pandemic.  By now you have probably noticed there are several pieces of legislation that potentially affect your company, and it is not so easy to get a clear picture of what exactly your obligations are and what aid is available.  This series of articles, that we are calling a Business Guide, is meant provide a detailed overview of the key provisions you need to know about to best navigate the coming months.

Business owners and executives need a clear, concise explanation of how the recent Coronavirus laws affect their companies and what the best strategies are for surviving the crisis.  Here it is.

First a caveat.  The Families First Coronavirus Response Act goes into effect April 1, 2020, so this guide is needed NOW.  Our firm’s clients cannot afford to wait weeks for all details to crystallize, and neither can we.  So, this article provides the best information currently available, and we will update as things develop.   Request Consultation

Aid to Businesses

Let’s start with the good news, so you do not stress out too much when we get to the part about your company’s obligations to employees.  The federal government is offering aid to businesses in two primary forms: (i) SBA loans, with forgiveness provisions, and (ii) tax breaks.


Paycheck Protection Program

Under the CARES Act (Coronavirus Aid, Relief and Economic Security), $350 Billion is set aside for government-backed loans.  The loans are through the Small Business Administration (SBA), so you can apply with any lender that offers SBA loans.  Our firm has close relationships with three banks that offer SBA loans, and we offer a flat-rate service that includes preparation and submission of the application, along with counsel to maximize loan eligibility and safeguard forgiveness provisionsRequest Consultation

These loans are part of the Paycheck Protection Program, one of the largest sections of the CARES Act, and they can be forgiven when used to maintain payroll through June 2020.  

The idea behind the loans, obviously, is to help you avoid laying off workers.  See Unemployment Benefits below to best weigh your options in this regard.

Eligibility for Paycheck Protection Program Loans

  • self-employed
  • sole-proprietors
  • freelance & gig workers
  • small business (fewer than 500 employees)
  • some medium-sized businesses (fewer than 1,500 employees)
  • 501(c)(3) Non-Profits (fewer than 500 workers)
  • some 501(c)(19) Veteran Organizations

Special Advantages with Paycheck Protection Program Loans

  1. Loan Forgiveness. All or some of these PPP loans can be forgiven.  Essentially, as long as you continue paying employees at their normal rate during the eight (8) weeks following origination of the loan, then you will be eligible for forgiveness of loan portions used to pay
    • payroll costs
    • mortgage interest
    • rent
    • utilities
  1. There are only a few carve-outs to the forgiveness parameters at the moment.  Our firm offers counsel and assistance applying for PPP loans, so you can make sure to take best advantage.  Request Consultation
  2. Low Interest Rate.  Interest rates should be no higher than 4% per year.
  3. Non-recourse.  These loans do not require collateral, so you will not be saddled with a mortgage or have a lien against any company assets.
  4. No Personal Guarantee.  This is big, and almost sounds too good to be true.  We will not know until clients get into the application process whether there might be exceptions but, in principal, you should not be asked to sign as guarantor of the loan.
  5. Deferment of Payments.  Lenders are expected to defer payment of principal, interest and, even, lender fees for no less than six (6) months.

How Much Money Can You Get?

The basic formula is this:

Loans can be up to 2.5 times the company’s average monthly payroll costs in 2019.  If your business was not operational in 2019, then it will be the average of January and February 2020. 

You also need to know what qualifies as “payroll costs.”

Payroll Costs for Employers:
  • worker compensation – salary, wage, commission or similar
  • cash tips or equivalent
  • payments for insurance premiums or other group healthcare benefits
  • payments for paid leave – vacation, parental, family, medical or sick
  • severance package – allowance for dismissal or separation
  • retirement benefits
  • state or local taxes assessed on worker compensation
Payroll Costs for Sole Proprietors, Independent Contractors and Self-Employed:
  • net earnings from self-employment – salary, wage, commission or similar

What does NOT qualify as “payroll costs”?

  • compensation in excess of $100,000/year, based on proration from February 15 – June 30, 2020
  • payroll taxes  –  See related article regarding CARE Act tax breaks
  • railroad retirement taxes
  • income taxes
  • compensation of employees whose residence is outside the US
  • sick leave or family leave wages covered under Families First Coronavirus Response Act – See related article regarding Paid Leave.

The maximum loan amount under Paycheck Protection is $10 Million.

Economic Injury Disaster Loans

Besides the Paycheck Protection Program, the CARES Act also expands Economic Injury Disaster Loans.  The program already existed, but the CARES Act opens eligibility and makes it easier to apply.  The key changes are as follows:

  1. Forgiveness.  The EIDL program provides for a $10,000 emergency cash advance that can be forgiven if spent on (i) paid leave, (ii) payroll, (iii) costs incurred due to supply chain disruptions, or (iv) rent or mortgage payments.
  2. Eligibility – Now available to sole proprietors, independent contractors, Tribal businesses, cooperatives, all non-profits, and Employee Stock Ownership Plans.
  3. Qualifying.  Approval can be based just on your credit score.
  4. Guarantee.  If the loan is smaller than $200K, it can be approved without a personal guarantee.

Can you get loans through BOTH programs?

Yes.  You cannot use the funds to cover the same expenses.  However, small businesses can indeed obtain loans under both the Paycheck Protection and the Economic Injury Disaster programs.

Our firm will be watching closely as lenders begin implementing the PPP and EIDL.  There are, of course, many more details you will need to know in order to successfully apply for these loans.  What if my business is part of a franchise?  What special exceptions are there for the hospitality sector?  What about the assistance my company is already receiving from the SBA or a Small Business Investment Company?

HLA offers counsel to individual businesses, tailored to their specific circumstances.

We will also be very alert to any hidden loopholes or unexpected interpretations of the new laws that may develop.  Consider hiring counsel to help your company avoid pitfalls that might jeopardize the excellent benefits offered under the available programs.  Request Consultation

~ Jeff Harrington, Esq.