CARES Act for Coronavirus Relief
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), is designed to provide comprehensive relief to individuals and businesses following the unprecedented impact of COVID-19 on our communities. The Act includes approximately $2 trillion in assistance, and comes as welcome news to many - news that may save their business or help them regain personal financial stability.
$350 billion is allocated to help small businesses keep workers employed amid the pandemic and economic downturn. We're learning all the details in an effort to be ready to support you in this time of need. As a locally-owned community bank, we're well positioned to do so. Here’s what we know:
Paycheck Protection Program (PPP) is a major component of the (CARES) Act which provides 100% federally guaranteed loans to small businesses. The loans may be forgiven if small business borrowers maintain their payrolls throughout the crisis or restore their payrolls afterward.
As a leading SBA lender, we are here to assist you with your financial needs. A summary of the program is below:
- A small business with fewer than 500 employees, as well as nonprofits, sole proprietors and independent contractors
- Loans can be up to 2.5 x the borrower’s average monthly payroll costs, not to exceed $10 million
- 1% maximum rate without pre-payment penalty and generally full deferral for up to one year of principal and interest for six months
- Unsecured and no guarantees required
How to Prepare:
- Gather payroll documentation for 2019 and 2020 year-to-date
- After loan is funded, track 24 weeks of mortgage interest, mortgage payments, rent & utilities (loan forgiveness)
- Note: The CARES Act is unclear on (1) how a borrower demonstrates eligibility for a PPP loan and (2) the documentation needed to calculate the loan amount. The SBA guidance is expected to clarify these issues, thus borrowers should gather this payroll documentation now due to high demand
We understand that the PPP loan forgiveness process is important to your business. If you received PPP funding through OMB you will also need to submit your forgiveness application through us as well. At this time, we are not able to process the forgiveness application due to the expectation of additional guidance from the Small Business Administration. We will notify our borrowers when this information becomes available. In the meantime, there are a few steps that you can take to prepare:
- Understand the eligible cost (payroll, mortgage interest, rent payments and utilities)
- Gather and keep records on eligible expenses
- Please note the following changes in accordance with the Paycheck Protection Forgiveness Flexibility Act (PPPFA)
- Drops the 75/25 payroll rule to 60/40
- Provides a five-year maturity for loans made on or after June 5, 2020, and provides an option for loans made prior to that date to extend maturity from two years to five years at the mutual agreement of the borrower and lender
- Extends the loan forgiveness period from eight weeks to 24 weeks (for loans made prior to June 5, 2020, borrowers may opt to keep the forgiveness period at eight weeks)
The SBA released a three page “EZ” Paycheck Protection Program loan forgiveness application requiring less documentation and fewer calculations than previously required. Form 3508EZ applies to borrowers who meet any one of these three criteria:
- Applied for the PPP loan as self-employed, an independent contractor or a sole proprietor with no employees
- Did not reduce salary or wages for any employee by more than 25%, and did not reduce the number or hours of their employees (excepting laid-off employees who refused an offer to return)
- Did not reduce salary or wages for any employee by more than 25% during the covered period and experienced reductions in business activity as a result of health directives related to COVID-19
Economic Injury Disaster Loan (EIDL) program was expanded by the CARES Act, and was originally created to assist businesses, renters and homeowners located in regions affected by declared disasters. The SBA has issued guidance that it will provide initial EIDL loan disbursements of up to $150,000, in addition to the advance of up to $10,000 within three days of application (through December 31).
Generally speaking, all of the following entities that have suffered substantial economic injury caused by a disaster, provided they were in existence prior to February 1, 2020:
- Small businesses, cooperatives and ESOPs with fewer than 500 employees, as well as most private nonprofits, sole proprietors and independent contractors
The maximum EIDL is a $2 million working capital loan at a rate of 3.75% for businesses and 2.75% for nonprofits with up to a 30-year term.
- Payments for Coronavirus EIDL loans are deferred for one year
- Up to $200,000 can be approved without a personal guarantee
- Approval can be based on credit score and no first-year tax returns are required
- No collateral required for loans of $25,000 or less; for loans of more than $25,000 general security interest in business assets will be used in lieu of real estate
- Eligible applicants for an EIDL loan can receive an emergency grant of up to $10,000 within three days of application (through December 31)
- There is no obligation to repay the emergency grant, and it is not necessary to have an approved EIDL loan to receive the grant; however, if you are able to secure a PPP loan, the $10,000 grant will be subtracted from the forgiveness amount
Note: The PPP created by the CARES Act prohibits borrowers from taking out two loans for the same purpose.
For more information, visit the US Chamber of Commerce’s EIDL program page.
What You Can Do Now
Reach out to any OMB teammate to discuss your business and your current needs. If you do not have an existing relationship with us, please schedule an appointment to speak with one of our SBA experts.
For more information, view the “Coronavirus Emergency Loans Small Business Guide and ChecklistPDF Download” provided by the US Chamber of Commerce, or visit https://www.sba.gov/.
Be alert and protect yourself from scams.
Your financial safety is our number one priority. The Federal Trade Commission is urging consumers to be watchful of potential scams attempting to exploit the heightened concern and uncertainty associated with the Coronavirus. To learn more, visit the FTC website.
Reminder: the IRS will never call, text, message, mail or email you to verify your bank account information. For more information, visit their website.
Above all, we are here to assist you. Thank you for your continued trust.
One final note to our business customers …
We know that the spread of COVID-19 is impacting many of our small business customers. Small businesses are vital to our community. We will help all of our customers bounce back from this public health crisis as quickly as possible.
If you’re experiencing financial hardship as a result of COVID-19, we’re here to help. Please give us a call at 417.869.9000 or email us at [email protected].