Updated July 21, 2020
The legislation includes:
- $310 billion in new funds for the Paycheck Protection Program (PPP), which provides small business with loans that can be forgiven if used for payroll, rent, mortgage interest and utilities. $60 billion of that amount is set aside for small lenders.
- $60 billion for Small Business Administration Economic Injury Disaster Loans (EIDL) and grants.
- $25 billion to bolster coronavirus testing, a key part of efforts to reopen the economy.
- $75 billion in grants to hospitals
The Small Business Administration (SBA), which administers the government-back loans, will resume accepting Paycheck Protection Program applications through participating lenders on Monday, April 27, 2020 at 10:30 a.m. EDT. The SBA had temporarily stopped taking applications for PPP loans when funds in the first round were depleted.
Small businesses must apply for the Economic Injury Disaster Loan directly through the SBA. Consequently, no applications can be submitted until after a second round of funding is added to the EIDL program and the SBA reopens the application process. EIDL applications that have already submitted will continue to be processed on a first-come, first-served basis.
The information below discusses what the new economic package offers restaurant businesses, as well as eligibility requirements and instructions for submitting a loan application.
Please check with your CPA before applying for any of these loans to ensure that you’re following all the rules and to expedite the loan process. Also consult with your CPA once you receive the funds to make certain that you comply with the loan forgiveness guidelines. If you do not have a CPA, we can match you with a Certified Restaurant365 Accounting Partner.
Check back for updates. If and when Congress approves additional funding for the Paycheck Protection Program and the Economic Injury Disaster Loan, this blog post will be updated accordingly.
Paycheck Protection Program Loan
The CARES Act’s Paycheck Protection Program Loan Guarantee is designed to provide a direct incentive for restaurants (and other small business) to keep their workers on payroll by providing each small business a loan up to $10 million for payroll and certain other expenses. Under this program, the Small Business Administration (SBA) backs small-business loans through local lenders. Small businesses can borrow up to 2.5 times their monthly payroll, based on prior year numbers or $10 million, whichever is less. For example, an employer with an average monthly payroll of $700,000 will be eligible for a loan of $1.75 million. SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.
This loan has a maturity of 2 years and an interest rate of 1%. Neither the government nor lenders will charge small businesses any fees. Loan payments will be deferred for six months. No collateral or personal guarantees are required.
On April 28, 2020, U.S. Treasury Secretary Steven T. Mnuchin and U.S. Small Business Administrator Jovita Carranza issued the following statement on the Paycheck Protection Program: “We have noted the large number of companies that have appropriately reevaluated their need for PPP loans and promptly repaid loan funds in response to SBA guidance reminding all borrowers of an important certification required to obtain a PPP loan. To further ensure PPP loans are limited to eligible borrowers, the SBA has decided, in consultation with the Department of the Treasury, that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application. Regulatory guidance implementing this procedure will be forthcoming.”
On April 29, 2020, Mnuchin and Carranza issued the following statement: In order to ensure special access to the PPP loan program for the smallest lenders and their small business customers, the SBA is only accepting loans from lending institutions with asset sizes less than $1 billion from 4:00 p.m. EDT until 11:59 p.m. EDT on April 29, 2020. SBA is working to ensure that all eligible small businesses have access to this funding to sustain their businesses and keep their employees on payroll. All lending institutions, regardless of size, will still be able to submit PPP loans outside of this timeframe. This reserved processing time currently only applies to April 29, 2020. In addition to ensuring access for the smallest lenders, we expect that providing this reserved processing time today will enhance the SBA’s loan system performance for all users who submit loans outside of this time frame.”
Loan forgiveness: The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months.
Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.
New guidance from the U.S. Treasury Department and the SBA clarifies whether the loan forgiveness amount is reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer to return to work. There is an exemption for the employer in such cases. The new guidelines, issued May 3, says that employers will not be penalized if workers reject an offer to return to their job. The CARES Act’s loan forgiveness reduction calculation excludes laid-off employees whom the borrower offered to rehire for the same salary/wages and same number of hours.
To qualify for this exemption, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.
On May 15, 2020, the SBA and the U.S. Treasury Department released the PPP Loan Forgiveness Application and detailed instructions for the application. Access the application and instructions.
On June 5, the passing of the Paycheck Protection Program Flexibility Act of 2020 extends the 8-week forgiveness period to 24 weeks. The 24-week forgiveness period is referred to as the “Covered Period.” This is the timeframe in which you must utilize the PPP loan proceeds received. The first day of the Covered Period for your PPP loan must be the same as the PPP Loan Disbursement Date and extends over the 24-week Covered Period. For example, if you received the PPP loan proceeds on Monday, April 27, the first day of your Covered Period is April 27 and the last day of the Covered Period is Sunday, October 4.
On June 17, the SBA, in consultation with the Treasury Department, released a streamlined application form meant to cut down on the red tape surrounding the forgiveness process. Restaurant operators can use the short form if their businesses didn’t reduce employees’ wages by more than 25%. Download the new short form.
Eligibility: Eligibility requirements as set forth by the Small Business Administration are ever-changing. Please visit the Who Can Apply section of the SBA website for more information or consult with your CPA. Please note: when reviewing the SBA eligibility requirements, you’ll see references to NAICS codes. The 6-digit NAICS code for full-service restaurants is 722511, for limited-service restaurants, the code is 722513.
When to apply: The SBA will begin accepting Paycheck Protection Program applications for the new round of funding through participating lenders on Monday, April 27, 2020 at 10:30 a.m. EDT.
Where to apply: You may apply for a Paycheck Protection Loan through existing SBA lenders. To find an SBA lender near you, visit the list of participating lenders by state, updated by the SBA on April 23, 2020. Additionally, R365 Capital, a free service offered by Restaurant365, can match your restaurant business with participating lenders to help get you in the queue for the loan program.
What information is required: If you wish to begin preparing your application, you can download a copy of the PPP borrower application form (updated June 24, 2020). The deadline to apply for a PPP loan has been extended to August 8, 2020.
For more information on the Paycheck Protection Program, visit https://www.sba.gov/funding-programs/loans/paycheck-protection-program. Additionally, the SBA in consultation with the Department of the Treasury revised the Paycheck Protection Program Loans Frequently Asked Questions on June 25, 2020.
Additional Economic Injury Disaster Loan Funding
The SBA’s Economic Injury Disaster Loan (EIDL) program provides working capital loans of up to $2 million.
With the additional funding provided by the new COVID-19 relief package signed into law on April 24, 2020, the SBA will resume processing EIDL Loan and Advance applications that were already in the queue as of April 15 on a first-come, first-served basis. SBA will begin accepting new Economic Injury Disaster Loan EIDL applications on a limited basis to U.S. agricultural businesses only.
How to apply: SBA will begin accepting new EIDL applications on a limited basis to U.S. agricultural businesses only. Eligible agricultural businesses may apply for the loan at https://covid19relief.sba.gov/#/.
For more information on COVID-19 SBA loan and debt relief options, visit https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources.
For questions, contact the SBA disaster assistance customer service center at 1-800-659-2955 (TTY: 1-800-877-8339) or e-mail email@example.com.
EIDL Loan Advance
In response to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000.
This advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available within three days of a successful application. This loan advance will not have to be repaid.
How to apply: SBA will begin accepting new Economic Injury Disaster Loan Advance applications on a limited basis to U.S. agricultural businesses only. To apply for the EIDL $10,000 cash advance grant, you must apply directly on the SBA website. Eligible agricultural businesses may apply for the Loan Advance at https://covid19relief.sba.gov/#/
For more information on the EIDL emergency advance, visit https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/economic-injury-disaster-loan-emergency-advance.
SBA Express Bridge Loan
An SBA Express Bridge Loan allows small businesses that currently have a business relationship with an SBA Express Lender to access up to $25,000 quickly. These loans can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing and can be a term loan or used to bridge the gap while applying for a direct SBA Economic Injury Disaster Loan. It will be repaid in full or in part by proceeds from the EIDL loan.
If a small business has an urgent need for cash while waiting for a decision and disbursement on an Economic Injury Disaster Loan, they may qualify for an SBA Express Disaster Bridge Loan.
For more information on the SBA Express Bridge Loan, visit https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/sba-express-bridge-loans
Please consult with your CPA before applying for the Paycheck Protection Program Loan or the Economic Injury Disaster Loan. If you do not have a CPA, let us match you with a Certified Restaurant365 Accounting Partner. In addition, R365 Capital, a free service offered by Restaurant365, can match your restaurant business with participating lenders to help get you in the queue for the loan programs.