Updated March 30, 2020
Last week was a busy week in Washington DC as the government works to craft a response to the coronavirus that will provide a stable business base on which to move forward. Governments are working to help businesses and their employees survive the virus impact. There are several ways the US has developed help packages already, and more are under consideration. This information is current as of this morning (March 30, 2020) and provides an update to our March 25, 2020 status update.
The first option is the SBA Disaster Loan Program for Coronavirus. This program allows businesses to borrow up to $2 million, and repay at no more than 4% interest over no more than a 30 year period. Requirements for this program include:
Credit History: Must be acceptable to the SBA.
Repayment: Must show the ability to repay.
Collateral: Collateral is required for loans over $25,000.
The SBA administers this program under the SBA 7a loan program, and utilizes those requirements.
The SBA Disaster Loan Application has been updated, and the SBA website has been upgraded to become easier to apply and to understand the programs. This link will take you directly to the SBA website.
The next option is loan modifications. The Federal Reserve, FDIC and other related agencies have provided guidance on relaxed standards as related to loan modifications. The agencies are encouraging financial institutions to work with borrowers impacted by the coronavirus and will not criticize institutions for working with borrowers and will not automatically categorize coronavirus related loan modifications as troubled debt restructurings (TDRs).
Short term modifications are for time periods of six months or less and include payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers must be less than 30 days past due at the time a modification is implemented.
Each lender will develop their own internal plans for qualification and approval for loan modifications.
We are providing links to the:
Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus.
The FDIC website. https://www.fdic.gov/news/news/financial/2020/fil20022.html
The third option is the CARES Act or Coronavirus Aid, Relief, and Economic Security Act, which was passed by the US Congress and signed by President Trump last week. While the details are continuing to be analyzed we have developed the current understanding of the major components of the Act:
Expands the SBA’s 7a loan program to a maximum of $10 million and expands allowed uses to payroll support such as paid sick or medical leave, employee salaries, mortgage payments, insurance premiums and other debt obligations.
The maximum loan amount is the lesser of $10 million or a calculated amount. The calculated amount is determined taking the average total monthly payroll costs for a one-year period multiplied by 2.5, plus any outstanding loan amount that was made between January 31, 2020 the date the refinanced cover SBA loan took place.
Businesses must have fewer than 500 employees, unless the SBA standards already allow for more than 500 employees for that industry.
Includes sole proprietors, independent contractors and other self-employed individuals.
Provides eligibility for businesses with more than one location but with no more than 500 employees per location.
Provides waiver of certain franchise related rules in the hospitality and restaurant industries.
Will not receive both a CARES Act loan and an economic injury disaster loan for the same purpose.
Are required to make a certification they have been affected by the coronavirus.
Will not pay 7a loan fees.
Will not have to meet the unable to find credit elsewhere test.
Will be able to receive waiver on collateral and personal guarantee requirements.
Will be allowed to exclude the forgiveness of debt from gross income for tax purposes.
Will allow Companies to defer paying a portion of their payroll taxes until December 31, 2021.
Additionally, a loan forgiveness program was developed as the Paycheck Protection Program. The key points of the loan forgiveness program are related to amounts spend by the borrower in the eight weeks after the loan origination date, and include:
Payroll costs, not to exceed $100,000 of annual compensation per employee.
Payment of interest on any mortgage loans incurred prior to February 15, 2020.
Payment of rent on any lease in force prior to February 15, 2020.
Payment on any utility for which service began prior to February 15, 2020.
We all need to be aware of the programs that are available to businesses that are impacted by the coronavirus. The government is clearly attempting to provide relief to employers, and to make the relief quickly available. There is ongoing discussion about special programs for the hospitality industry in a potential Phase 4 recovery plan.
As you are considering providing loan modifications or encouraging borrowers to apply for SBA loans, we can help develop cash flows to support loan requests, and we can help borrowers gather the information needed to apply for loans and to support the loan forgiveness standards.
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Stay Safe and Healthy!