The CARES Act was signed by the President on March 27th, 2020. Included in the Act is an Emergency Small Business Loan program which applies to non-profits and for-profits.
SBA Loan Programs
There are currently two SBA loan programs in effect to help non-profits continue to operate.
The first is for non-profits with fewer than 500 employees, the SBA 7(a) loan, referred to as the Small Business Interruption Loan (SBIL), allows you to borrow up to four times specified monthly operating expenses, not to exceed ten million dollars. To the extent the loan is used to keep employees on payroll and cover certain other specified expenses between March 1st and June 30th of 2020, it may be eligible for loan forgiveness.
The second loan program available to non-profits is the Economic Injury Disaster Loan (EIDL). This loan allows you to borrow up to two million dollars at an interest rate of 2.75%. This can be used to pay fixed debts, payroll, accounts receivable and other bills.
You will not be able to get both loans to cover the same costs, and it appears SBA 7(a) will be the better option for most non-profits. Regardless, we recommend that you apply for both loans, if you think there is any chance that your non-profits will require operating funds to weather this crisis. SBA does not charge loan fees or interest if you don’t use the loan funds, even if you are approved. The loans will operate like credit lines.
The EIDL applications are available now on the SBA website, click the link to apply online https://covid19relief.sba.gov/. To access the SBA 7(a) application click the link https://www.sba.gov/sites/default/files/SBA%20Form%201919%204-28-14_review.pdf. All indications are that the 7(a) loans could be processed significantly faster, through most banks, although both promise initial funding within three days of application. You may not have to repay loan advances, in case your loan application is ultimately not approved.
The biggest reason I see SBIL as the better option is potential forgiveness of the loan, to the extent that it is used to meet payroll expenses between March 1 and June 30, 2020. You will have to apply for loan forgiveness, and submit documentation and good faith certification of the economic conditions that justify the forgiveness, but that should not be an issue for many of you who would otherwise have to close down your operations. The payroll expenses eligible include sick leave payments under the Families First Coronavirus Response Act, although you will not be able to claim loan forgiveness for those sick leave expenses reimbursed through payroll tax credits.
We will update this information as available and recommend that you contact your business bank to let them know you are interested in the SBIL program. If you have specific questions or are requiring assistance with the loan application process, you can directly email or call your SMCo contact or you can call our office at 909-307-2323.
|Peter H. Wesch, EA
Smith Marion & Co.