The Coronavirus Aid, Relief, and Economic Security (CARES) Act has appropriated more than $350 billion in funds for small businesses and the Paycheck Protection Program and Health Care Enhancement Act has appropriated an additional $310 billion for the Paycheck Protection Program (PPP), an additional $50 billion for the Economic Injury Disaster Loans (EIDLs) and an additional $10 billion for the EIDL grant program. To help you understand and determine the potential options for your business, we've outlined two options for financial relief, both administered through the U.S. Small Business Administration (SBA).
This information is not intended as financial, accounting, legal, or tax advice. See Disclaimer. Readers should seek specific financial, accounting, legal, and/or tax advice from a qualified professional before acting with regard to the subjects mentioned herein.
Additional Highlights from the CARES Act
Over $300B in relief for you and your customers is coming
American singles making $99k or less, or households making $198k or less, should see funds in the coming weeks.
Businesses are getting a tax break
Certain business and income taxes will be deferred, and the extended due date to file a 2019 tax return is July 15, 2020. The ability to use certain tax benefits such as net operating losses (NOLs) and alternative minimum tax (ATM) credits has also been refined with an aim to provide near-term liquidity.
Plus, additional support for our communities
There will be vastly expanded unemployment benefits, support for our healthcare system, and more.
Understanding the new loans
Update as of July 6, 2020: The new deadline to apply for a PPP loan is August 8, 2020 and the SBA is currently accepting new EIDL and EIDL grant applications.
You can apply for both EIDL and PPP loans as long as they do not pay for the same expenses. Before taking both, talk to your lender or a financial advisor.
While your circumstances may affect your loan eligibility, we hope this informational resource helps you better determine whether to pursue these options and we encourage you to seek personalized advice from your lender or qualified professionals.
Option 1 - Economic Injury Disaster Loans ("EIDLs")
Get a $10,000 advance in 3 days or less
The Economic Injury Disaster Loan (EIDL) is an emergency program intended to offer small business loans up to $2M (with an interest of 3.75% and a repayment term up to 30 years) to cover ordinary and necessary business expenses during certain disasters and emergencies. It also includes a grant for eligible businesses to receive a cash advance of up to $10,000 that you're not required to repay.
There have been recent reports, however, that (i) the SBA has unofficially capped the maximum loan amount to $150K per applicant and (ii) the advance will provide $1K per employee up to a maximum of $10K based on the number of your employees as of January 31, 2020.
Option 2 - Paycheck Protection Program ("PPP")
Get up to 24 weeks of operating expenses back
The Paycheck Protection Program (PPP) offers approved business owners 100% federally guaranteed loans up to $10M (with an interest rate capped at 1.00% and a repayment term of 5 years) and forgives up to the amount spent (or incurred) on certain operating expenses (i.e., payroll costs (including compensation to furloughed employees, bonuses and hazard pay, in each case, up to $100K on an annualized basis), owner compensation replacement, rent obligations on real and personal property pursuant to agreements effective before 2/15/20, utilities for services that began before 2/15/20, and interests on mortgage obligations on real or personal property incurred before 2/15/20) during the first 24 weeks after lender’s first disbursement of loan or, alternatively, solely for borrower’s with payroll cycles that are bi-weekly or more frequent, the 24-week period beginning on the first day of the first pay period following disbursement of the loan (so long as, with respect to incurred expenses, payment is made on the first payment date following the applicable 24-week period); provided, however, that (i) if the foregoing 24-week period extends beyond December 31, 2020, the applicable forgiveness period will be the period beginning on the date of first disbursement of loan and ending on December 31, 2020 and (ii) if the loan was made before June 5, 2020, borrower may elect to have the forgiveness period be the first 8 weeks after lender’s first disbursement of loan.
At least 60% of the loan proceeds must be spent on payroll costs (inclusive of the amount of any refinanced EIDL) and the same threshold must be met in order to qualify for loan forgiveness. The loans can be deferred until the date on which the SBA remits the borrower’s loan forgiveness amount to the lender (with interest accruing during deferment), which can occur up to 90 days after forgiveness amounts are determined, or notifies the lender that no loan forgiveness is allowed. If a borrower fails to apply for loan forgiveness within 10 months after the last day of the applicable forgiveness period, the borrower must begin to make payments of principal, interest, and fees on its loan after such 10 month period. The repayment term of any loans made before June 5, 2020 is 2 years but borrowers and lenders may mutually agree to extend it to 5 years.
Who should consider EIDL?
Smaller businesses who require less cash
Loans are available up to $2M per business. You may want to consider this option if you have high additional costs to cover in addition to payroll. You can qualify for up to $200k without a personal guarantee. There have been reports, however, that the SBA has recently capped the loan amounts at $15,000.
Businesses who need immediate cash
If the 3-day $10,000 disbursement will help you pay payroll, provide sick leave, or finance debt, you may want to consider this option.
- (i) Any business with 500 or fewer employees (including employees of “affiliated” entities), (ii) any business which meets the SBA's size standards, (iii) any agricultural enterprise with 500 or fewer employees or (iv) any individual who operates under a sole proprietorship or as an independent contractor, in each case, that has been operating since Jan 31, 2020 and has been adversely impacted by COVID-19 is eligible. Certain restrictions may apply if you have affiliates or outside investors.
- Borrowers may apply for an EIDL loan in addition to a loan under the Paycheck Protection Program, provided the loans are not used for the same purpose, including for payroll costs, rent or utilities.
- Also, if you’ve received the EIDL advance of up to $10,000, that amount will be subtracted from the amount forgiven under PPP.
Are there any collateral, personal guarantee or credit requirements?
- Under the CARES Act, loans up to $200,000 can be approved without a personal guarantee.
- No collateral is required for loans up to $25,000. For loans exceeding $25,000, general security interest in business assets will be used for collateral instead of real estate.
- Under the CARES Act, the requirement to show that you could not receive funding from another lending institution has been waived.
What's the application process?
- The advance application is available online through the SBA’s application portal.
- If you have previously applied under the old application form, you'll need to reapply for the advance now that the system is updated with a streamlined application.
- The application deadline is December 31, 2020.
- We anticipate that there will be high demand for these loans and they will be granted on a first-come, first-served basis, so if you are interested, we recommend that you apply as soon as you are able.
What paperwork will I need?
You'll just need your credit score and the new self-certification form—no tax returns required.
How soon will I see relief?
The $10,000 grant was intended to be administered within 3 days of submitting your application. Additional loan relief is being offered on a first come, first serve basis to businesses across all 50 states, so you may see longer wait times for loans.
Recent reports suggest that it may take multiple weeks for loan applications to be processed and approved.
Who should consider PPP loans?
Medium-sized businesses who need more cash
The maximum loan amount under PPP is the lesser of $10M per business or 250% of the average monthly payroll costs* during a covered period**, while the EIDL program is capped at $2M.
Businesses with high payroll costs
A business with high payroll costs* will be able to take out a larger loan, and can get up to 24 weeks of most operating expenses back, subject to possible reductions, if any (see Who's eligible?).
See SBA Guidance on How to Calculate Maximum Loan Amounts.
* Payroll Costs consist of:
1. Compensation to employees (whose principal place of residence is the U.S. but excluding payments to independent contractors and sole proprietors) in the form of salary, wages, commissions, or similar compensation, including housing stipend, allowance provided to an employee as part of compensation, and all cash compensation (but all compensation must be capped at $100K on an annualized basis for each employee) – provided that non-cash benefits, including the following, exceeding $100K may be included in the calculation of Payroll Costs:
a. employer contributions to defined-benefit or defined-contribution retirement plans;
b. payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums; and
c. payment of state and local taxes assessed on compensation of employees;
2. Cash tips or equivalent;
3. Payment for vacation, parental, family, medical, or sick leave;
4. Allowance for severance/separation or dismissal;
5. Payments required for the provisions of group health care benefits including insurance premiums;
6. Payment of any retirement benefit; and
7. Payment of state and local taxes assessed on employee compensation.
For an independent contractor or sole proprietor, Payroll Costs consist of: Wage, commissions, income, or net earnings from self-employment or similar compensation. (but all compensation must be capped at $100K on an annualized basis).
** Per the Treasury’s guidance: In general, borrowers can calculate their aggregate payroll costs using data either from the previous 12 months or from calendar year 2019. For seasonal businesses, the applicant may use average monthly payroll for either (i) the period between 2/15/2019, or 3/1/2019, and 6/30/2019 or (ii) any consecutive 12-week period between 5/1/2019 and 9/15/2019. An applicant that was not in business from 2/15/2019 to 6/30/2019 may use the average monthly payroll costs for the period 1/1/2020 through 2/29/2020.
Borrowers may use their average employment over the same time periods to determine their number of employees, for the purposes of applying an employee-based size standard. Alternatively, borrowers may elect to use SBA’s usual calculation: the average number of employees per pay period in the 12 completed calendar months prior to the date of the loan application (or the average number of employees for each of the pay periods that the business has been operational, if it has not been operational for 12 months).
- (i) Any business with less than 500 employees (including FT and PT employees of the business as well as employees of “affiliated” entities, if any, but excluding independent contractors and sole proprietor – see footnote ** in Who should consider PPP loans? for calculations of average number of employees), (ii) any business that meets the SBA's industry based size standards or the alternative size standard*, or (iii) any single business entity in the hospitality/food services industries that employs not more than 500 employees per physical location, provided that in each case of (i), (ii) and (iii), the business must have been operating on February 15, 2020 and must have had employees for whom it paid compensation and payroll taxes. Certain restrictions may apply if you have affiliates or outside investors, except that affiliate restrictions are waived for (a) any business operating as a franchise that is assigned a franchise identifier code by the SBA (e.g., if a franchise brand is listed on the SBA Franchise Directory, its franchisor or each of its franchisees meeting one of the foregoing eligibility requirements may apply for a PPP loan, provided that the $10M cap on PPP loans is a limit per franchisee entity, and each franchisee is limited to one PPP loan), and (b) any business entity in the hospitality/food services industries with not more than a total of 500 employees (e.g., if each hotel or restaurant location owned by a parent business is a separate legal business entity, each hotel or restaurant location that employs not more than 500 employees is permitted to apply for a separate PPP loan provided it uses its unique EIN). See Treasury’s FAQ above for more details (including sample application of affiliation exemptions to hotel and restaurant businesses).
- Any individual who operates under a sole proprietorship or as an independent contractor or eligible self-employed individual and who was in operation on February 15, 2020 is also eligible for the PPP loan.
- Whether or not subject to affiliation rules or eligible for affiliation waivers, businesses that are part of a single corporate group** shall in no event receive more than $20 million of PPP loans in the aggregate. This limitation is effective with respect to any loan that has not yet been fully disbursed as of April 30, 2020. For loans that have been partially disbursed, this limitation applies to any additional disbursement that would cause the total PPP loans to a single corporate group to exceed $20 million. It is an applicant’s responsibility to notify the lender of a violation of such limit in an application or loans received and to withdraw or request cancellation of any pending application or approved loan
- Any borrower that receives a PPP loan is eligible for loan forgiveness up to the full principal amount of the loan and any accrued interest, provided, however, that if less than 60% of the loan proceeds were spent on payroll costs, the maximum forgiveness amount shall be reduced such that the amount actually spent on payroll costs constitutes 60% of the maximum forgiveness amount. The amount of forgiveness is reduced proportionally by, first, any decrease in total employee compensation (excluding employees with annualized compensation over $100K during 2019) exceeding 25% and, second, any decrease in average monthly number of FTE employees (based on a 40-hour workweek), in each case, during the first 24 weeks after lender’s first disbursement of the loan (or, alternatively, solely for borrower’s with payroll cycles that are bi-weekly or more frequent, the 24-week period beginning on the first day of the first pay period following disbursement of the loan) relative to a recent comparison period***; provided, however, that (i) if the foregoing 24-week period extends beyond December 31, 2020, the applicable forgiveness period will be the period beginning on the date of first disbursement of loan and ending on December 31, 2020 and (ii) if the loan was made before June 5, 2020, borrower may elect to have the forgiveness period be the first 8 weeks after lender’s first disbursement of loan. To ensure that borrowers are not doubly penalized, the compensation reduction applies only to the portion of the decline in employee compensation that is not attributable to the FTE reduction. See Loan Forgiveness FAQ and Revised Guidance for further details. Borrowers can correct reductions in payroll that occurred from February 15 through April 26, 2020 by rehiring or remedying compensation by December 31, 2020 to receive full loan forgiveness – based on the latest guidance, this corrective measure does not seem to be available for reductions in compensation or FTEs that occurred before February 15 or after April 26, 2020. Also, borrowers are exempt from the proportional reduction in loan forgiveness due to a reduction in FTEs, if the borrower is able to document in good faith that for the period between February 15 and December 31, 2020, the borrower was unable to: (a) rehire employees who had been employed on February 15, 2020, and hire similarly qualified employees for unfilled positions by December 31, 2020; or (b) return to the same level of business activity at which the borrower was operating before February 15, 2020, due to compliance with requirements or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration between March 1 and December 31, 2020, relating to standards of sanitation, social distancing, or other worker or customer safety requirements related to COVID-19.
- If you received an EIDL loan between January 31, 2020 and April 3, 2020, you can apply for a PPP loan, however, if the EIDL was used for payroll costs, any PPP loan you receive must be used to refinance the EIDL.
- If you’ve received the EIDL advance of up to $10,000, that amount will be subtracted from the amount forgiven under PPP. You can take out a state bridge loan and still be eligible for the PPP loan.
* A business that meets both tests in SBA’s “alternative size standard” as of March 27, 2020:
1. Maximum tangible net worth of the business is not more than $15 million; and
2. The average net income after Federal income taxes (including any carry-over losses) of the business for the two full fiscal years before the date of the application is not more than $5 million.
** Businesses are part of a single corporate group if they are majority owned, directly or indirectly, by a common parent.
*** The Comparison Period for:
Reductions in Compensation is between 1/1/2020 and 3/31/2020
Reductions in FTEs is (i) between 2/15/2019 and 6/30/2019, or (ii) between 1/1/2020 and 2/29/2020, or (iii) alternatively for seasonal employers, any consecutive 12-week period between 5/1/2019 and 9/15/2019.
Are there any collateral, personal guarantee or credit requirements?
No collateral or personal guarantee required and no requirement to show that you were not able to obtain credit elsewhere.
What's the application process?
- You can apply directly with any number of SBA-approved lenders, including any federally insured depository institution, federally insured credit union, and Farm Credit System institution, that is participating in the PPP (see the most active SBA lenders and use the SBA’s lender match tool).
- Talk to your current lenders (or to an SBA-approved lender) as soon as possible to understand the requirements. Many banks are SBA-approved lenders, and if you have an account or an existing small business banking relationship with them, it may expedite your verification process. If you wish to begin preparing your application, you can review the application form to see the information that will be requested from you.
- The application deadline is August 8, 2020.
What paperwork will I need?
Per the latest SBA guidance, the following documents and information are required, however, as guidance and process continues to be ironed out, the lender processing your application will be best positioned to provide more details on what's needed.
For Loan Application
- Loan Application form (in which borrower must make a good-faith certification concerning the necessity of its loan request; provided, however, that any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith and the certification will not be audited)
- Details of any SBA Economic Injury Disaster Loan (EIDL) received between January 31, 2020 and April 3, 2020
- List of affiliates (if the business or any owner of the business is an owner of any other business or under common management with any other business)
- Documents supporting eligibility: (1) documents showing that the business was in operation as of 2/15/2020 and (2) documents showing that the business either had employees for whom it paid salaries and payroll taxes or paid independent contractors, as reported on a Form 1099-MISC, in each case on or around 2/15/2020 (such as payroll processor records, payroll tax filings, or Form 1099- MISC, or income and expenses from a sole proprietorship (and if such documentation is not available, other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount)).
- Documentation supporting the payroll costs used to calculate the loan amount.
For Loan Forgiveness Application
- Loan Forgiveness Application form (a borrower may use Form 3508EZ instead of the standard form (i) if the borrower had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of payroll in the loan application or (ii) if no reduction in forgiveness amount will apply to the borrower – see Loan Forgiveness Application instructions).
- Documentation/records showing use of proceeds for payroll costs.
- Documentation verifying the number of full-time equivalent employees on payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the applicable forgiveness period (i.e., the applicable 24-week or shorter period) following the loan disbursement must be provided to the lender.
- To the extent the exemption from reduction in loan forgiveness due to FTE reduction applies, good faith documentation evidencing that for the period between February 15 and December 31, 2020, the borrower was unable to: (a) rehire employees who had been employed on February 15, 2020, and hire similarly qualified employees for unfilled positions by December 31, 2020; or (b) return to the same level of business activity at which the borrower was operating before February 15, 2020, due to compliance with requirements or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration between March 1 and December 31, 2020, relating to standards of sanitation, social distancing, or other worker or customer safety requirements related to COVID-19.
- See Loan Forgiveness Application forms and instructions for details on necessary documentation.
How soon will I see relief?
Loans from the SBA have historically taken about 45 days and the high volume of applications may slow the process. However, recent reports suggest that applications are being processed and approved much more quickly. The CARES Act removed some steps ordinarily associated with SBA loan approval to help expedite relief, including allowing approved lenders to make decisions on applications without having to go back to the SBA for approval. The SBA is also bringing on new lending partners to try and help with quicker fund dispersal. For loan forgiveness, lenders must issue a decision within 60 days of receiving the loan forgiveness application.
Tax Specific FAQs
Information relating to business tax provisions, social security tax deferral and employee retention credit considerations under the CARES Act can be accessed here.
Social Security Tax Deferral FAQs
(6/5/2020 Update: Borrowers are eligible for both the payroll tax deferral and PPP loan forgiveness – the CARES Act has been amended to remove the prior restrictions on benefiting from both.)
SBA Loan Guidance and Resources
Visit The Small Business Administration (SBA) for updated guidance on COVID-19 resources.
You can find your local SBA District Office for assistance and also search for a Small Business Development Center (SBDC) in your area. SBDCs are able to answer your questions, provide no-cost business consulting, and offer low-cost business training in partnership with the SBA.
Additional SBA links:
Main Street Lending Program
The Federal Reserve has established a Main Street Lending Program (MSLP) to support lending to small and medium-sized businesses that were in sound financial condition before the onset of the COVID-19 pandemic. The MSLP will operate through three facilities: the Main Street New Loan Facility (MSNLF), the Main Street Priority Loan Facility (MSPLF), and the Main Street Expanded Loan Facility (MSELF).
Structure. Under the MSLP, eligible lenders will make loans to eligible borrowers (that is not forgivable), and the Federal Reserve will purchase a 95% participation in each loan from lenders (up to $600 billion in the aggregate). Loans issued under the MSLP will have a five-year maturity with an interest rate of LIBOR +3%, deferral of principal payments for two years, and deferral of interest payments for one year. The MSLP will be administered by the Federal Reserve Bank of Boston.
Eligibility. As detailed further in the term sheets, U.S. businesses established before March 13, 2020 may be eligible for loans if the business either: (1) has 15,000 employees or fewer; or (2) had 2019 revenues of $5 billion or less. (Certain restrictions may apply if a borrower has affiliates or outside investors.) Paycheck Protection Program borrowers are eligible for the MSLP as well.
Status. The MSLP has been launched as of June 15, 2020. Contact your bank/lender for details and advice (including whether your lender is participating, and about your eligibility and application process). Further details and forms can be found on the Federal Reserve Bank of Boston’s website.
Business Resources by State
See a list of state, local and private resources available to small businesses. This list will be continuously updated as new programs and information become available.
Webinar: Financial Relief Opportunities for Small Businesses
Brookfield Properties and Covington hosted an informational call to help our tenants better understand the federal relief provided for small businesses pursuant to the CARES Act.
This call provides initial, specific information about how to potentially access these loan programs, the criteria for eligibility, and addresses other key questions.
Listen to Webinar Recording
If you have additional questions, please reach out to your Brookfield Properties contact.