Guidance for Small Business Loans and Direct Payments
Today, we are sharing with you a video provided to us by the AmericanHort Association that provides valuable information to employers about small business administration loans and direct payment programs. This guide may prove useful to many ag business owners. Use the link below, to go to the AmericanHort website page with several webinars provided. The first webinar on the page is the one dealing with loans.
Paycheck Protection Program Update
New information was distributed today by the Small Business Administration regarding Paycheck Protection Program (PPP):
- An SBA press release provides the broad outlines of the new PPP, a program just enacted this past Friday as part of the CARES Act.
- The US Treasury Department posted a website with additional details about the PPP including several information sheets.
- SBA also updated its web site with details about the PPP which includes a link to a draft PPP application form.
- Based on the information, here is a broad overview of the PPP loan program expected to be offered starting on 4/3:
- The Lender: PPP loans will be made by banks, credit unions, and other regulated lenders, not by SBA. PPP loans will be backed by 100% SBA loan guarantees. SBA may approve additional lenders. Check with your local business banker to see if they are in the process of getting on board to deliver PPP loans, but realize that banks are still learning about their important role in delivering this program too.
- Eligible Borrowers: PPP loans will be made available to:
- Businesses (including nonprofits, sole proprietorships, independent contractors, and the self-employed) of all industry sectors (no mention so far of any excluded business sectors)
- In operation as of 2/15/2020
- With 500 or less employees (though there is special provision that may allow lodging, food service, and franchise businesses to qualify based on # of employees per location) – or businesses with more than 500 employees who nevertheless meet the SBA size standard for their industry sector.
- Loan Size: PPP loan size is set by the business’s typical pre-coronavirus monthly payroll times 2.5, but not to exceed $10 million. Monthly payroll is calculated based on the business’s typical cumulative wages/salaries/commissions/tips paid (not to exceed $100,000 per worker) plus benefits and payroll taxes paid.
- Use of Loan Proceeds: The loan is to be used to pay payroll (including to re-hire recently laid-off employees) through 6/30/2020, interest due on mortgages incurred before 2/15/2020; rent due on leases in place before 2/15/2020, and utility services in place before 2/15/2020,
- Collateral: None required
- Personal Guarantees by Owners: None required
- Demonstrated Financial Need/Credit Elsewhere Test: Not applicable for PPP loans
- Loan Structure: 0.5%, 2-year term loan – first payment deferred for 6 months; no prepayment penalty.
- Loan Fees: The business pays no fees. It appears SBA will pay a fee to the lender for processing and administering the loan, and the lender may elect to pay a portion of this to any agents they use, BUT the business is not to pay any fees.
- Loan Forgiveness: All or part of the loan may be forgiven. The amount will depend on how the PPP loan funds are used, with payroll being the primary use that leads to debt forgiveness. Some debt forgiveness may be given when the loan is used for mortgage interest, rent, and/or utilities. The full formula for debt forgiveness is not yet entirely spelled out, so watch for additional details. Using the PPP loan to pay payroll and maintain your workforce is the main path to maximum debt forgiveness.
- When and How to Apply: Applications will begin to be accepted soon, likely 4/3/2020, via a process that is still being developed. Applications are not being accepted yet. Please be patient.