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COVID-19 Small Business Relief (CARES Act)
At BayCoastBank, we care about our Small Business and Commercial clients and are committed to helping businesses navigate these challenging times.
As a long-standing partner with SBA programs, we have been closely following the SBA and its lending programs for use in COVID-19 relief.
Our experienced team of lenders are well-versed in SBA loan programs and are dedicated to providing your business guidance and advice as the government delivers assistance programs and options to support your business.
Here’s what you should know.
On March 27, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act – an estimated $2 trillion package, which specifically allots $10 Billion for Economic Injury Disaster Loans (EIDLs) and $350 billion for Paycheck Protection Loans (PPP) to help small businesses.
Beginning on Friday, April 3, 2020, the SBA is currently scheduled to accept applications for PPP Loans from small businesses and sole proprietorships and is scheduled to accept applications from independent contractors and self-employed workers starting April 10, 2020.
We anticipate that this program to be widely popular, and we encourage you to act as soon as possible.
Please understand that BayCoast Bank has assembled this information and documentation based upon the best information available to the Bank during this quickly changing and challenging time. As such, the application and supporting documentation requirements are subject to change, and the loan application and approval process is further subject to SBA rules and regulations once promulgated.
At this time, we recommend that businesses consider two types of relief loans (You can apply for one, or both, depending on your circumstances):
PLEASE NOTE: We are now accepting applications from BayCoast Bank Small Business customers and businesses without an existing relationship within our market area.
The CARES Act’s Paycheck Protection Program Loan Guarantee offers another source of help. Under this program, the SBA backs small-business loans through local lenders.
Here are the particulars of the loan program:
• Offered to small businesses with fewer than 500 employees, select types of business with fewer than 1,500 employees, 501(c)(3) non-profits with fewer than 500 workers and some 501(C)(19) veteran organization (have to be in operation before February 15, 2020).
• Self-employed, sole proprietors, freelance and gig economy workers are also eligible to apply (again, you have to be in operation before February 15, 2020).
• Loans are given up to a maximum of the lesser of $10 million, or 2.5 times the average monthly payroll costs – including wages for employees making under $100,000, as well as expenses for paid sick leave, healthcare and other benefits - during the 1-year period before the date on which the loan was made.
• The maximum interest rate under this program is 4% (SBA has announced a 1% rate for this program).
• The loan term is up to 10 years (SBA has selected a 2 year term for this program).
• No personal guarantee or collateral is required for the loan.
• You can only apply for this program one time – multiple applications aren’t permitted.
• Payments will be deferred for 6 months and up to 1 year.
• Part of this loan may be forgiven and not counted as income if it’s spent during the first eight weeks on operating expenses.
Loans are eligible for forgiveness when the proceeds are used for any of these costs:
• Payroll costs, excluding prorated amounts for individuals with compensation greater than $100,000.
• Rent pursuant to a lease in force before February 15, 2020
• Utility expenses for services which began before February 15, 2020.
• Mortgage interest expenses for a building owned and used by the business.
A word of caution… the extent of your forgiveness eligibility may be reduced if you have recently laid off any full time workers, or reduced the pay of any other workers. The US Chamber of Commerce offers a step-by-step calculation here.
It is the responsibility of the borrower to carefully document the use of the proceeds of the loan for the eight week period starting when the loan is originated. You may want to segregate the funds in a separate account, and you should keep very detailed payroll records and copies of any checks or other payment receipts for payment of utilities, rent and mortgage interest.
SBA Economic Injury Disaster Loans
The Small Business Administration’s (SBA) Economic Injury Disaster Loans (EIDLs) are the first line of support. These loans aren’t new. They’ve always been available in the event of disaster. However, this is the first time a virus or pandemic event has been defined as a disaster. Because of that declaration, businesses in every state and territory are now eligible to apply for Economic Injury Disaster loans.
The SBA offers many favorable terms in their EIDLs:
• Loans are up to $2M
• The term is 30 years
• Interest Rates are 3.75% for small business and (2.75% for non-profits)
• The first month’s payments are deferred a full year from the date of the promissory note.
Expanded EIDL (CARES Act) provisions include:
• EIDLS can be approved by the SBA based solely on an applicant’s credit score (not repayment ability and no tax return is required). A prior bankruptcy doesn’t disqualify your business.
• EIDLS smaller than $200,000 can be approved without a personal guarantee. They are also not requiring real estate as collateral and will take a general security interest in business property.
• Borrowers can receive $10,000 in an emergency grant cash advance that can be 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 loss. Applicants can get emergency cash even if they don’t qualify for additional funds and lending decisions are based on self-certification and the applicant’s credit score.
• It expands access to sole proprietors or independent contractors, as well as tribal businesses, cooperatives, and ESOPs with fewer than 500 employees and all non-profits including 501(c)(6)s.
Please call your BayCoast Bank Commercial or Business Banker if have any additional questions.
Comparison: EIDL vs. PPP Loan Programs
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