Changes to the SBA Economic Injury Loan program and PPP
Over the last 48 hours, I’ve been getting calls, emails and texts from clients, bankers, local companies I’ve never worked with, as well as technical assistance providers who help facilitate the SBA disaster loan program. Like you, many are confused.
As you know, I facilitated disaster loans in the past which is how I know many of you. So, I’m supposed to know how to guide businesses during this crisis. I think we can all agree that this crisis has pushed SBA and everyone to the brink without the capacity to assist all those who need it - NOW. I spent many hours over the last 48 trying to understand the last minute changes to the EIDL loan program and the new PPP program and just when I thought I understood it, the SBA Administrator announced new changes last night which conflicted with what I read on the website all day yesterday. After the press conference, I contacted my network of bankers and SBA folks and they were telling me that despite the SBA assurances for the PPP program, they were NOT going to roll out the program today, Friday, April 3rd – they just aren’t ready.
This morning I woke up to multiple news stories expressing that very sentiment.
All that to say, I know you are confused, SBA is confused, the Dept. of Treasury is confused, banks are confused, and I am confused. My humble assessment is that until the banks are assured about the SBA guarantees they will delay the roll out and some may decide not to implement it. Banks are currently evaluating the program but since the Guidelines were sent out only hours before the launch, the banks are not sure how to protect themselves or their borrowers, especially regarding the loan forgiveness. Overall, the PPP is risky for banks and borrowers without clear understanding of the terms. If the borrower defaults and some will, what assurance do the banks have that their SBA guarantee will be honored? If the borrower is expecting loan forgiveness, what assurance do they have given the perpetual changes to the program? In addition, it seems that once banks understand the program and decide to participate, they are only accommodating their existing clients. They do not have the capacity to engage new clients nor do they want to take on more risks. If you are interested in reading the guidelines (31 pages) – here it is.
If you already applied for the PPP loan (and I know some of you have) please call your bank as there may be a new application to fill out based on the NEW guidelines. Bank of America launched its portal for the small business loans this morning prioritizing existing customers with online accounts who are active borrowers. If your bank is participating, here is a list of SBA Lenders Serving North Carolina Small Businesses.
I’d like to refer you to the Small Business Technology Development Center website. I trust this organization having worked with them for 15 years. I personally know many of the dedicated staff and management behind the scenes. They are updating their site constantly to help small businesses across the state. They are the foot soldiers of SBA and a great resource for small businesses.
In a time when planning seems impossible, many of you are asking how to prepare for what comes next. We are all trying to figure it out, and I believe we will. It won’t be easy but please know many people are working very hard behind the scenes to figure out the new SBA lending programs and processes. I, for one, will be doing my best to stay on top of everything checking in with SBA, lenders, and clients to share what I know.
Here are some Action Items you can take to prepare for the PPP program:
1. Reach out to a participating lender, starting with your own bank, and work with them to gather the necessary documentation:
1. Payroll and payroll tax records for the last year
2. For sole proprietors: you will need documentation of income and expenses. If this is not available, you must provide supporting documentation such as bank records to demonstrate payroll amount.
2. Calculate your maximum borrow level:
Step 1: Aggregate payroll costs from the last twelve months for employees whose principal place of residence is the United States.
Step 2: Subtract any compensation paid to an employee in excess of annual salary of $100,000
Step 3: Calculate average monthly payroll costs (divide the amount from Step 2 by 12).
Step 4: Multiply the average monthly payroll costs from Step 3 by 2.5.
Step 5: Add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020, less the amount of any “advance” under an EIDL COVID-19 loan (because it does not have to be repaid – that’s the plan).
3. If you apply for a PPP loan, you can still apply for other SBA disaster loans. However, you cannot use your PPP loan for the same purpose as your other SBA loan(s). If you received an SBA Economic Injury Disaster Loan (EIDL), you can apply for a PPP loan. If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.
Lastly, I want to say that I’m humbled and grateful that so many of our local business are reaching out to me and trusting me to guide them during this crisis. I can’t wait to eat in your restaurants again, drink some beer, resume some acupuncture, visit my hair salon, go to yoga/ Pilates, walk in our parks, and attend live meetings.