Disaster COVID-19 Business Lending 701

Disaster COVID-19 Business Lending 701

 MAY 26, 2020

Business owners have some options for financial assistance available to apply to now, and others that will be available shortly.

There can be no duplication of use of funds among all of these federal and state programs. Keeping very detailed records of your actions (as noted below) is paramount. As these programs are defined and delivered, we will have an understanding of how the programs interrelate (work together in concert and impact each other). At this point, we do not have complete information on that.

Please note that changes from Disaster Lending 601 are highlighted in yellow. We also suggest re-reading the entire document each time.

Given the announcement by Governor Scott on 5/20/20 regarding the $400 Million in proposed state funding, we are now going to place the State and local funding options first.

STATE FUNDING OPTIONS:

1). Vermont Economic Recovery and Relief Package $400 Million Phase One: Immediate Relief to Survive.

Important Note: The Governor and the Agency of Commerce will now work with the Vermont legislature towards passage of this relief package over the next couple of weeks.  THE PROCESS IS NOT OPEN NOW. We will continue to read and assess information as we have it and release more details as they unfold.

Current details of the proposed programs can be seen (and will be updated) here: https://accd.vermont.gov/sites/accdnew/files/documents/Vermont%20Economic%20Recovery%20Package%20-%202020-05-20.pdf

Additionally the Agency of Community Commerce and Development are holding Town Hall Meetings on the programs. For times and access:

https://accd.vermont.gov/covid-19/vermont-economic-recovery-and-relief-package

The proposed relief package consists of multiple components. The ones most relevant to small business are the following:

  1. Financial Assistance; $250 Million:
  1. Restart Vermont Emergency Action Grants ($150M). This segment is aimed at funding directed to lodging, restaurant, retail and agriculture businesses that have been closed or lost significant revenue and are struggling to meet fixed costs.
  1. $100M of the program will be administered by the Tax Department. Businesses will file an online form demonstrating impact and need. Payments will then be distributed to restaurant, lodging and retail operations based on meals, rooms and retail tax history with a gross annual revenue of $2.5 million or less.  Businesses that can demonstrate need will be eligible for a grant based on their gross revenue and estimated fixed costs.
  2. $50M will be administered by the Agency of Agriculture, Food and Markets and has two components:
  1. Restart Vermont Dairy Farm Relief Program ($40 Million): This program will issue grants to Dairy Farmers (cow, goat, and sheep’s milk) to cover market losses and extra expenses caused by COVID-19 related business disruptions.
  2. Restart Vermont Dairy Value Added Processing Program ($10 Million): This program will issue grants to value added dairy processors (i.e. bottled milk, cheese, yogurt, butter, ice cream) to cover market losses and extra expenses caused by COVID-19 related business disruptions.
  1. Vermont Economic Injury Disaster Loan and Grant Program ($80 Million). This segment is for businesses and non-profits that closed or had significant decreases in revenues.
  1. VEDA will administer $80 Million in a combination of grants and loans designed to help businesses address fixed costs with which existing federal and state programs have been unable to help.
  1. Vermont Restart Loan and Grant Program ($20 Million). This program is designed for sole entrepreneurs, microbusinesses and other small businesses with annual gross revenues under $1 Million and fewer than 5 full-time employees will be administered by local and regional sources using a common loan and grant application.
  1. The remaining Programs in Phase One will cover (details on the ACCD site above):
  1. Housing Assistance ($50 Million)
  2. Technical Assistance ($5 Million)
  3. Marketing ($5 Million).

FEDERAL PROGRAMS, due to the passage of the CARES Act:

Current statement (5/4/20 @ 8:05 am) from the SBA on when the EIDL Portal will reopen:

  • The SBA will begin accepting new Economic Injury Disaster Loan (EIDL) and EIDL Advance (EIDLEA) applications on a limited basis.  At this time, only agricultural business applications will be accepted due to limitations in funding availability and the unprecedented submission of applications already received.  
  • Agricultural businesses includes those businesses engaged in the production of food and fiber, ranching, and raising of livestock, aquaculture, and all other farming and agricultural related industries (as defined by section 18(b) of the Small Business Act (15 U.S.C. 647(b)).
  • In addition, SBA has resumed processing EIDL applications that were submitted before the portal stopped accepting new applications on April 15 and will be processed on a first-come, first-served basis.  

        

AGRICULTURAL BUSINESSES (as described above) Apply for directly via the SBA portal:

https://www.sba.gov/page/disaster-loan-applications 

(Note there are now many scammers on line so only use this site)

        

ALERT:

Urgent alert for our clients and contacts: If you are contacted by phone, fax, email or mail asking for additional financials to support your EIDL application, that person MUST have your application/confirmation number as evidence that they are from the SBA. Unfortunately, we are learning of entities and individuals posing as SBA affiliates and we want you to please be mindful.

Learn more at:

https://www.consumer.ftc.gov/blog/2020/04/new-funding-coronavirus-sba-loans-attracts-scammers

  1. Economic Injury:

The SBA INJURY Response has two components:

IF YOU HAVE ALREADY APPLIED FOR THE EIDLEA:

  1. The Economic Injury Disaster Loan (EIDL) available through December 31, 2020; this is a low interest, long-term loan.
  1. Step One in this process was to complete the EIDL Streamlined Application on line which allowed you access to the Advance portion.
  1. Once you hit submit you were given a confirmation page with an application number. You should have printed this page and taken a screen shot. Do not lose this number.
  2. And begin a file of all the material regarding this process, including any information you provided and the confirmation numbers you received from the SBA (put the confirmation number on the inside of the folder).
  1. If you have not received your EIDLEA please check your application number:
  1. If it begins with a #3 you are in the queue and your advance is in process.
  2. If it begins with a #2 that indicates there is a problem with the application and you should call the hotline @ 800-659-2955 to resolve any issues. The issues are most likely regarding entry errors in your application and can be easily resolved.
  1. Once you have received your EIDLEA you will be contacted by the SBA with the next steps. 

Please note: the application process for the EIDL has fundamentally changed to a sliding scale offered loan amount without any additional documentation required. This is completely different from the original process of an EIDL application. We have requested verification from the ODA (Office of Disaster Assistance) and are awaiting their confirmation that this is the new process. As soon as we have more details we will advise. In the meantime if you get the email asking you to create your SBA Economic Injury Disaster Loan Portal Account which opens up the sliding scale loan offer you can contact us and hopefully we will have more information at that point.

  1. We have now been told that once the EIDLEA $ appear in your bank account, you should, within 7-10 days receive an email from the SBA that includes your application number and allows you to choose a loan amount from a sliding scale.
  2. SBA may make an initial loan disbursement of an amount less than the approved loan amount due to current appropriations to the program.
  1. If you are approved for the EIDL, we recommend that you evaluate the impact of this new debt repayment on the cash flow of your business before moving forward to accept the money. VtSBDC advisors can provide assistance on how to evaluate.

IF YOU ARE AN AGRICULTURAL BUSINESS AND HAVE NOT APPLIED FOR THE EIDLEA:

  1. NOTE NAME CHANGE: The Economic Injury Disaster Loan Emergency Advance (EIDLEA) {FORMERLY the Emergency Economic Injury Grant (EEIG)} is the component added on 3/30/20 that allowed a business to request an advance up to $10,000. And still allows for an agricultural business to apply.
  1. SBA has provided us with the information that the EIDLEA is figured on the calculation of $1,000 per employee up to 10 employees.
  2. To be considered for an advance “up to $10,000” a business needs to complete the streamlined EIDL application and (toward the end of that application) should check the box “to be considered” for this advance. You must check this box.
  3. At this point you will be asked for your BANKING Info:
  1. Bank Name        
  2. Account Number
  3. Routing Number
  1. If you have already completed an EIDL application before 3/30 you will have to RE-APPLY for the advance option. This is regardless of whether you have received a denial.
  1. You should have received notice of this.        
  2. You need to have all of the information above prepared.
  1. According to SBA, the advance does not need to be paid back under any circumstances. If you proceed with the loan the advance will be deducted from the total amount available to you. And if you decide not to take the loan you may keep the advance.
  2. Please note: As a sole proprietor or LLC owner(s) that take an owners draw, you are allowed to count yourself as an employee for this streamlined application.
  3. The EIDLEA will appear in your bank account with the following description: SBA/Treasury. You will receive no notification that it is coming.
  1. And do NOT re-apply if you simply think too much time has passed. The ONLY reason to re-apply is if you applied before 3/30 as noted above, or if you have NOT RECEIVED an application #.
  2. You can call the Hotline if you are concerned about the EIDLEA:

800-659-2955.

Available to apply for now through your local approved SBA lender:

  1. The Paycheck Protection Program (PPP) available through June 30, 2020; which re-opened on 4/27 @ 10:30 am with additional funding of $310 Billion and loans that were in the pipeline when the fund shut down will be funded first. The PPP is a loan specifically designed to cover payroll and payroll expenses for employers who maintained their workforce during the COVID-19 emergency or can bring them back immediately. This loan is only available thru SBA approved lenders.

IF YOU HAVE ALREADY APPLIED AND RECEIVED PPP FUNDS:

Please note: the Application for Forgiveness has been issued by the SBA. And while the process is mostly defined, further guidance on the application process is still to be released. Contact your lender for questions and assistance in completing the application process once your 8 weeks of funds have been distributed. 

  1. If you want to review the loan forgiveness application before you speak with your banker here is the link:

https://www.sba.gov/sites/default/files/2020-05/3245-0407%20SBA%20Form%203508%20PPP%20Forgiveness%20Application.pdf

  1. Also here is the link to the most recent IRF, released to us on 5.23.20 from The Treasury Department on the Loan Forgiveness Process:

https://home.treasury.gov/system/files/136/PPP-IFR-Loan-Forgiveness.pdf

If YOU ARE CONSIDERING APPLYING (please continue to read): There are still funds remaining in the PPP program. Contact your bank if you are interested in applying. And make sure you review the forgiveness application with the bank as you evaluate whether this is the right vehicle for your business.

                

  1. Use this website to locate an SBA lender in your area. Note that some banks are choosing to work with only their existing customers.

https://www.sba.gov/paycheckprotection/find

  1. The SBA released its PPP Compliance Requirements on 4.21. Please read these before you consider applying for the PPP. And note that these should now be reviewed with your banker in relationship to the forgiveness application. As an example the REFERENCE period you use to create your base application numbers of FTE’s and monthly compensation are used in relationship to the newly defined COVERED period used to compute forgiveness.
    https://content.govdelivery.com/accounts/USSBA/bulletins/28795f8.
  2. The Treasury Department released on 4.24.20 a document entitled PPP: How to Calculate Maximum Loan Amounts – By Business Type. We have linked here. This is a very important document for you to read:

https://home.treasury.gov/system/files/136/How-to-Calculate-Loan-Amounts.pdf

  1. NOTE there has been a change in the time frame used by a seasonal business to calculate the PPP loan amount. This information was released in the Interim Final Report release by the Department of the Treasury on 4/29/20.
  1. The report reads: “…a seasonal employer may determine its maximum loan amount for purposes of the PPP by reference to the employer’ average total monthly payments for payroll “the 12-week period beginning February 15, 2019, or at the election of the eligible [borrower], March 1, 2019, and ending June 30, 2019.”
  1. The 12-week period is used only for determining the loan amount. The funds still need to be used in the 8 weeks following disbursement. 

https://home.treasury.gov/system/files/136/Interim-Final-Rule-Additional-Criterion-for-Seasonal-Employers.pdf

  1. Borrowers whose previously submitted loan applications have not yet been processes may revise their applications based on clarifications reflected in the FAQs.
  1. Check with your bank to see if they are allowing changes to applications that are in the queue.
  1. The best way to proceed on the PPP application process is to contact your bank and get the SBA Application and the additional list of requirements. Requirements vary slightly bank to bank, but items on the list below are consistent across the banks who have shared their requirements with us to date (but note this is a partial list, so talk with your bank and prepare accordingly):
  1. Certificate of Good Standing for your business.
  2. Articles of Incorporation (and some banks are also requesting Operating Agreements and Bylaws.
  3. The Drivers Licenses or Passports of all owners of 20% or more of the business.
  4. All tax documentation on Employee Costs for 2019. See your bank for the exact documents they need. Note: this is for paid employees and 1099 personnel only and not independent contractors (who will be allowed to apply themselves).
  5. Sole Proprietors and LLC Owners will need to provide proof of compensation. Again see each bank for how and what they require for documentation.
  6. Verification of number of employees on 2/15/20.
  1. And verification that these employees live in the US.
  1. Most banks are providing a link to the full set of instructions from the Treasury Department if you would like to see the fine print. Or go here: https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses
  1. The loan terms are:
  1. 24 months at 1%.
  2. Loan proceeds covers payroll expenses for 8 weeks for employees maintained at the level of employment pre-COVID or returned to work immediately after the loan is made.
  1. This includes payroll, state and local taxes, and benefits. But again, make sure you are giving the bank all the payroll verification they require and they will tell you the amount they can use as the basis for the calculation.
  2. The loan also covers mortgage interest (not principal), rent and utilities for the 8 weeks of the loan.
  1. Loan forgiveness is part of the language of this program. Please note that the process is NOT automatic. Once you have taken the loan and paid your employees and the expenses allowed, then you request forgiveness from the bank.
  1. We have now seen the documentation for the forgiveness process. See above. Also note again that the process is still being reviewed and refined as it is being instituted.
  2. We do know that 100% pristine and accurate reporting for the 8 weeks of how you spent the loan money will be a large part of that process.
  1. According to the US Department of the Treasury the 8 weeks that will be considered for forgiveness begins on the date the lender makes the first disbursement of the PPP loan to the borrower (and the lender must make the first disbursement of the loan no later than 10 calendar days from the date of loan approval).
  2. For clarification on the question about bringing employees back and its impact on forgiveness here is Question 20 from the FAQ from the Treasury Department:

Question 20:  The amount of forgiveness of a PPP loan depends on the borrower’s payroll costs over an eight-week period; when does that eight-week period begin?  

Answer:  The eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval.

Here is the link to the FAQ on the PPP from the Treasury (this link is to the most recent version dated 5.19.20):

https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf        

  1. There is a 6-month automatic deferral of payments for the first six months of the loan that is included within the 24 month term.
  2. For those who receive an EIDLEA (advance) after a PPP, the amount of the EIDLEA will be subtracted from the amount forgiven.  
  3. For those who receive an EIDLEA (advance) prior to applying for a PPP, the amount of the EIDLEA will be subtracted from the loan amount (since the PPP is potentially a grant, and you cannot have two grants).
  1. There are two very frequently asked questions regarding this program and employees:
  1. The first is about retaining the employees who are brought back immediately following the disbursement of the loan: If my business at the end of the 8 weeks is unable to (because of reduced revenue streams) keep all the employees on payroll can I lay them off and return them to unemployment. VT DOL provided the following answer: Yes, they can go back on UI…as long as they haven't exhausted overall benefits and the claimant can re-open his/her claim.
  2. And the second is what happens if my business receives the PPP and an employee does not want to return to work for reasons not related to COVID-19 (having or caring for someone with the virus). The VT DOL has now provided very specific instructions on handling this situation. These guidelines (including the exchange between employer and employee being fully documented and the employer filing a report with the VTDOL) become crucial in the loan forgiveness process.

https://labor.vermont.gov/unemployment-insurance/refusal-return-work-covid-19

  1. Our current advice on the PPP is to speak with your banks. Determine the amount that you could be eligible for and then compute the dollar amount of the payments you will be required to make on the debt. Assess if you could afford that debt if it were not forgiven.  To us, at this point, we feel this is the most responsible calculation to make.
  1. This calculation should include both the term of the loan repayment (which we now know is 18 months) plus some determination of where you think your business will be in terms of revenue as you open post-COVID. We know the PPP as a recovery vehicle will vary industry to industry.
  1. Once approved, and before accepting the funds, VtSBDC advisors can provide assistance on how to evaluate whether or not to accept the money.

Also the Pandemic Unemployment Assistance (PUA) is now open for small business owners (including self-employed contractors) who are not eligible for unemployment thru the State of VT unemployment system. For information, eligibility requirements and instructions:

https://labor.vermont.gov/PUA

Also related to your payroll considerations, two new refundable Payroll tax credits have been announced that reimburse small businesses dollar for dollar for the cost of providing COVID-19 related leave:

  1. Deferral of Employer-side FICA Payroll Taxes – Can defer the employer portion of FICA taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022.
  2. Retention Tax Credit – Adds a tax credit for employers to encourage businesses to keep workers on payroll during the crisis. The IRS now has a one page explanation (link below). Please see your accountant to discuss if this is applicable to your business.

https://www.irs.gov/newsroom/irs-employee-retention-credit-available-for-many-businesses-financially-impacted-by-covid-19

We expect more details from VT banks and the SBA on these loans:

  1. Debt Relief Programs 

This is a group of SBA loan vehicles that will be accessed through SBA approved lenders in Vermont. These will work in concert with the EIDL and any funds lent through these programs will be considered as mitigation of the final amount lent via the EIDL. These include:

  1. The Small Business Debt Relief Program covers the SBA 7a, 504 and Microloan Program. These loans can be used for short and long-term working capital. We have the following additional information on these programs:
  1. The SBA will automatically pay the principal, interest, and fees of current 7(a), 504, and microloans for a period of six months.
  2. The SBA will also automatically pay the principal, interest, and fees of new 7(a), 504, and microloans issued prior to September 27, 2020.
  3. For current SBA Serviced Disaster (Home and Business) Loans: If your disaster loan was in “regular servicing” status on March 1, 2020, the SBA is providing automatic deferments through December 31, 2020. Note these refer to other EIDL programs that have been accessible post previous disasters (Tropical Storm Irene being one).
  1. The SBA Express Bridge Loan (EBL) Pilot Program allows small businesses that currently have a relationship with an SBA Express Lender to access up to $25,000. These loans can help small businesses overcome the temporary loss of revenue they are experiencing and can be a term loan or used to bridge the gap while applying and waiting for a direct SBA Economic Injury Disaster loan.
  1. Given the high volume of PPP applications that banks are processing we have not been made aware of any banks that are processing this loan at the moment. But you can certainly request information from your lender.
  2. A couple of things to note about this loan:
  1. You must be able to prove that you cannot borrow this money elsewhere.
  2. It is a fundamental of the EBL program that you must have an existing relationship with the bank in order to access this loan.
  3. And if you do get an EIDL the proceeds must be used to pay this back in full or part.

Some local lending is now coming on line and more will be coming in the next couple of weeks as RDC’s and Towns work to re-orient their current lending programs to address the disaster. These will be smaller amounts that should be seen primarily as bridge loans while applications for the above are in process. And any loan/grant you receive for COVID-19 will, if you proceed with the full EIDL application, be subtracted (mitigated) from the final amount.

Here is a link to the RDC’s if you would like to contact them regarding their loan options:

https://accd.vermont.gov/economic-development/resources/rdc

As part of your preparation to apply for any loan/financing option, you should make sure you take two steps:

1) You should first determine what your business recovery looks like. Including an assessment of when or if to re-open.  We have provided a self-guided COVID-19 Recovery   Roadmap (it is a third of the way down on this page:

https://www.vtsbdc.org/coronavirus/

2) Gathering the financial documents required to complete the Roadmap will bring you closer to being prepared to complete any and all applications for funding. As the State of Vermont completes it process for accessing loans and grants we will update this list accordingly. In the meantime it is always important to have:

  1. A list (diary or narrative) of actions that you have taken in response to COVID-19, and direct impact you have seen. For example: 3/17/20 “laid off 2 employees” {names, # of hours typically worked and pay rate} and directed them to unemployment. Return to work date given with the date). This list will help identify economic impact.
  2. Have the following financial records up to date:
  1. Profit and Loss
  2. Balance Statement
  3. Sales records for 2019 and 2020 to date (this should come from QuickBooks or your POS or whatever system you use to capture daily income). Showing the actual impact on revenues is the basis of economic impact lending.
  4. Three years of completed tax returns (personal and business). If 2019 is not complete, then a 2019 Profit & Loss Statement.
  5. Up to date Accounts Payable.
  6. Up to date Accounts Receivable.
  7. An up to date list of your collateral (including your personal real estate) with item description and current replacement value.

Business assistance will continue to be provided by and available from VtSBDC (vtsbdc.org) and the Regional Development Corporation in your region.