New Stimulus Proposal, Existing Loan Programs & A Business Checklist
The US Senate has proposed a new $1 trillion stimulus package to bring more help to struggling Americans and businesses during the COVID-19 pandemic. The Health, Economic Assistance, Liability Protection and Schools (HEALS) Act announced July 27, 2020 proposes through a series of bills to bring more help to individuals, businesses and schools, including:
- A second round of $1,200 stimulus checks for individuals
- Liability protection for businesses from COVID-19 related lawsuits
- Capping federal unemployment benefits at 70% of wages
- Extension of the Paycheck Protection Program allowing certain businesses to get a second PPP loan
- Over $100 billion for schools
- $25 billion for COVID testing
The package is in response to a stimulus package proposed by the US House of Representatives in May (The HEROES Act). Negotiations now begin to reach a final compromise before the Senate summer recess begins August 7.
Help for Businesses
As of now, there are several options for businesses to get help, including the recently launched Main Street Lending Program, now available and accepting applications. Which businesses and organizations can apply for this program? And what’s the status of the other existing loan programs? What else should you be doing to protect your business in these unprecedented times?
GJM’s Bob Bobek, CPA offers this easy reference status report on loan programs out there and an important checklist for businesses.
COVID-19 Business Loan Programs Status Report
The Paycheck Protection Program (PPP) was established through the CARES Act and is run through the Small Business Administration (SBA). PPP loans are forgivable for those borrowers who prove they meet requirements for forgiveness. The loan program is intended to help businesses keep workers on the job during the pandemic. Loans must be $10,000,000 or less. Those businesses with loans under $2 million will be deemed to have met the economic uncertainty requirements for the loan. Some other details on the PPP:
- Money must fund payroll and specific nonpayroll costs (like rent, utilities)
- Loans received before June 5: maximum 2-year maturity
- Loans received after June 5: maximum 5-year maturity
- Loans are issued through approved lenders
- Interest rate: 1%
- File forgiveness application with your bank
- Application deadline extended to August 8, 2020
Paycheck Protection Program status: Second round of funding is now available, and applications are being accepted. As of July 24, 2020 the SBA reports there are over $130 billion dollars left in funding for the PPP. You can access the PPP loan application here.
The Main Street Lending Program was established as part of the CARES Act, offering $75 billion to those businesses and organizations that meet requirements. Designed for: small/medium-sized businesses in good shape prior to the pandemic that didn’t qualify for the PPP or need more help in addition to their PPP loans. Other information:
- Standard loan, not forgivable
- Accessible to nonprofits
- Loans issued through approved lenders
- No more than 15-thousand employees or 2019 annual revenues no more than $5 billion
- Minimum loan $250,000
- Principal payments defer 2 years
- Interest payments defer 1 year
- Maturity of 5 years. 15% in years 3 and 4. Year 5: 70% balloon payment
Main Street Lending Program status: Now open for applications through September 30, 2020. Businesses must work with an eligible lender.
Economic Injury Disaster Loans (EIDL) are designed to help businesses and nonprofits in response to a disaster like a hurricane or flood. Administered by the SBA, they provide liquidity in a time of need and have been made available as a result of the COVID-19 pandemic.
- Capped at $150,000 per company
- Very low interest rate: 3.75% for businesses, 2.75% for nonprofits
- Not forgivable
- You get 30 years to pay back the loan
- Can defer first payment for a year
- Can get both PPP and EIDL, just don’t use the money to pay the same expenses funded by your PPP loan
EIDL status: accepting applications. You can access the EIDL application here.
So, you have a high-level view of the loan programs out there to help businesses respond to COVID-19. What now? GJM Partner Bob Bobek has counseled many of his clients and other businesses through COVID response to secure a loan that will work for their business and help them to get through this difficult time with more liquidity. If your business has decided to pass on applying for a loan, he cautions that could be a big mistake.
“These loan programs have been designed with one goal in mind: to infuse cash into American businesses,” he says. “The government has made available billions and billions of dollars for these programs. It won’t be reallocated. When it’s gone, it’s gone.”
Here’s Bob’s checklist for businesses not sure how to proceed:
- Talk to your banker. He or she can assist you in deciding which loan program is the right fit for your business. Bob says most banks are willing to defer loan payments to help you keep more liquidity.
- Talk to your landlord. Most landlords are open to deferring payments or restructuring your lease.
- Talk to your insurance agent. If your sales volume is down or equipment is idle you may be eligible for a reduction in your insurance cost.
- Look at the Paycheck Protection Program. If your business decided not to pursue a PPP loan, Bob says you need to look at this again.
- Defer FICA taxes. The CARES Act allows businesses to delay payment of the FICA Match portion of your payroll taxes through December 31, 2020, with half due by December 31, 2021 and the rest due December 31, 2022.
- Review other government loan programs such as the EIDL and Main Street Lending Program. While they are loans, they have favorable payment terms. They will help give you that extra liquidity in case you get hit hard by the downturn and find your business in a position where its more difficult to secure a loan.
- Talk to your accountant. In addition to the loan programs outlined here, your business could qualify for tax credits as part of the CARES Act.
Bobek says be sure you look into all options that can help you get through this worldwide public health emergency, including any new opportunities that may result from the HEALS Act. You want to be sure that the business you worked so hard to build can survive and even thrive through the pandemic and into the future.
Bob Bobek, CPA has presented frequently on the Paycheck Protection Program and other loan programs designed to help businesses during the pandemic. He’s helped many business owners determine which loan program is right for their business and assisted with loan and forgiveness applications.
Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.