The Senate is poised to pass an approximately $2 TRILLION stimulus package to confront the devastating economic impact of the coronavirus on our society. The proposed legislation covers many sectors of the economy, but some of the provisions directly related to small business are summarized below. Please keep in mind that this legislation, while apparently set to pass with bipartisan support in the Senate, still would need to pass the House of Representatives and be signed by the President to become law.
SMALL BUSINESS ECONOMIC INJURY DISASTER LOANS AND OTHER RELIEF
$377 billion would be allocated for Small Business Interruption Loans and other assistance, aimed at helping small businesses make payroll and cover other expenses.
- $350 billion for 100% guaranteed SBA loans, a portion of which the SBA would forgive based on allowable expenses for the borrower;
- $10 billion for direct grants for businesses that do not qualify for the Economic Injury Disaster Loans program;
- $17 billion SBA to step in and make six months of principal and interest payments for all currently outstanding SBA backed business loans.
Economic Injury Disaster Loans – Key Points
- Cash flow assistance through 100% federally guaranteed loans to employers that maintain their payroll during the pandemic.
- no loan fees
- For employers that do not lay off and continue to pay their employees, their loans would be forgiven; Would apply retroactively to March 1, 2020 so employers can bring workers who may have already been laid off back onto payrolls;
- Eligibility – Small employers with 500 employees or fewer, including nonprofits, would be eligible to apply for the loans;
- Loans available immediately through existing SBA-certified lenders, including banks, credit unions, and other financial institutions, and SBA required to streamline the process to bring additional lenders into the program;
- Secretary of Treasury authorized to expedite the addition of new lenders and make further enhancements to expedite delivery of capital to small employers;
- The size of the loans tied to an applicant’s average monthly payroll, mortgage, rent, utility payments, and other debt obligations over the previous year, with maximum loan $10 million.
- Business must retain their employees and payroll levels from March 1, 2020, through June 30, 2020 (employers can bring staff back, see above) so that the portion of the loan used to cover payroll and payments on pre-existing debt can be forgiven. Further, employers with tipped employees would receive forgiveness for additional wages paid to such employees during the covered time.
- Loans can be made based solely on credit scores.
- Loans available to all non-profits, including 501(c )(6)s.
- Loans below $200,000 can be approved without a personal guarantee.
- Borrowers can receive $10,000 cash advances that are forgiven if spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments, or repaying obligations that cannot be met due to revenue losses.
LOAN GUARANTY PROGRAM – Existing 7(a) SBA Loan Program
- Expands the allowable uses for the existing 7(a) SBA loan program to permit payroll support, including paid sick leave, supply chain disruptions, employee salaries, mortgage payments, and other debt obligations to provide immediate access to capital for affected small businesses;
- Maximum loan amount for SBA Express loans would be increased from $350,000 to $1 million to provide borrowers with revolving lines of credit for working capital purposes;
- Cost of participation in the 7(a) program would be reduced for both borrowers and lenders by providing fee waivers, an automatic deferment of payments for one year, and no prepayment penalties.