SBA Programs Owners Should Be Aware Of

April 1, 2020

 

 

There has been a flurry of legislation passed in the last week. Keep in mind that while the laws have been written the regulations are still being drafted. Things will change. I’m writing this blog as of April 1st, 2020 and haven’t updated it again (I’ll change this as the weeks go on). That said here are the current remedies owners of property impacted by the Coronavirus can apply for. For all of these loans you must have been in business before February 15, 2020.

EIDL $10,000 Grant and Loan Up to $2M Per Entity

Small businesses are being awarded an immediate payment of $10,000 if they are impacted by the coronavirus. If an entity is not approved for a larger loan this will be given as a grant. If the entity is approved for a larger loan the $10,000 will be rolled into the 30 year loan. Each entity can have request proceeds of up to $2M. If a larger loan is given the $10,000 will be rolled into the loan. The funds are limited and will be allocated on first come first serve basis. The application is a very short form and can be found here: https://covid19relief.sba.gov/#/

Max Loan Amount: Up to $2M
Interest Rate: 3.75%
Deferral: No Payment for 12 Months
Use of Proceeds: financial obligations and operating expenses that could have been met had the disaster not occurred
Collateral: UCC Financing Statement
Personal Guaranty: Yes
Loan Forgiveness: No
Is It A Grant: If you are not approved for a larger loan amount the $10,000 will be awarded as a grant.

Chart courtesy of Lauletta Birnbaum

Paycheck Protection Program

This is another program approved through the legislation that allows loans for small business owners to cover their expenses, leases, and payroll. Regardless of the amount the loan will not be collateralized and no interest payments are due for the first 12 months. The term loan is for a maximum of 10 years and will have an interest rate cannot exceed 4% (other SBA loans have been 3.75%). A portion of these loans can be forgiven as long as the funds are used for payroll costs, rent, and utility expenses. Any FDIC bank can potentially make loans under this program. 

Max Loan Amount:  up to $10 million, calculated as follows: 2.5x the average monthly “payroll” costs, measured over the 12 months preceding the loan origination date (plus the outstanding balance of an EIDL loan obtained during the covered period if refinanced into the PPP loan)
Interest Rate: 4%
Term: 10 Years
Use of Proceeds: In addition to the allowable uses of a loan made under Section 7(a) of the SBA, recipient may use the proceeds for Payroll costs (as defined below), group healthcare benefits, insurance premiums, and interest (but not principal) on mortgages or other debt incurred prior to February 15, 2020, rent on any lease in force prior to February 15, 2020 and utility payments.
Collateral: None
Personal Guaranty: No
Loan Forgiveness yes, equal to amount spent by the borrower during 8-week period after the loan date: 

  • “payroll” costs (as defined below), 
  • interest payment on any mortgage incurred prior to February 15, 2020, 
  • payment of rent on any lease in force prior to February 15, 2020, and 
  • payment on any utility for which service began before February 15, 2020.

Chart courtesy of Lauletta Birnbaum

Express Bridge Loan Program

This program allows for the immediate award of $25k for small businesses while waiting for the other loans to completely clear. The loan term is for 7 years. Unlike the other two options this is a loan program that has been in place for some time. As of March 13th this loan has been approved for use during the Covid 19 pandemic. Lenders can charge up to prime + 6.25% as allowed under the law. Given the higher interest rate and shorter term, many folks are waiting for the two new programs to kick in before getting started. Many investors I know are not pursuing this loan given that it has a higher interest rate and shorter term.

Your Property Manager Needs to Document Impact

Right now as property managers we are gathering tenant information for anyone claiming to be impacted. The bottom line is that we don’t know what the government is going to ultimately require to verify impact. You need to document everything.

Conclusion

As always seek the professional council of your bankers, CPAs, and attorneys. The regulations are still being drafted. Everything is up in the air. Continue to reach out to us for the latest in SBA loan updates.

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