There are two relevant federal programs through the Small Business Administration (SBA): the upcoming Paycheck Protection Program (PPP), which is expected to be signed into law Friday, and the Economic Injury Disaster Loans (EIDL). Both are detailed below, but we focus here on the PPP because it has multiple advantages for lenders: 

1. PPP loans will be issued by banks, not the SBA. We expect banks will be far more lenient than the SBA in granting these loans. 

2. If you keep your employees, much of the loan will not have to be repaid. PPP loans can be partially forgiven for companies that maintain their pre-COVID staff and payroll levels. 

3. Applying for EIDL may make it more complicated to receive PPP loans. 

 

The situation changes daily. This is the best information we have at this time, but please let us know if your experience with this process is different than what we outline below.

 

 

 

 

Available SOON, Take Action NOW: Paycheck Protection Program (PPP)

(May also be referred to as SBA 7(a) loans.) 

 

The standard SBA lending program, called 7(a), will soon be expanded to provide loans that, based on their terms, essentially act as grants to all small businesses that adhere to the loan forgiveness requirements. For those who have already received EIDL, you will have the option to roll your existing EIDL into this 7(a) program. 

 

Much of these loan amounts will be forgiven by the lender as required by the new law, as long as you do not plan to fire employees or significantly reduce payroll. 

 

Although this program has not yet become law, we strongly encourage you to start considering it now and begin talking to banks about the application process. Banks are likely to be flooded with applications by next week. 

 

PPP Timeline: Under the new law, we expect that funds will be distributed within days after application. Banks may be now collecting information from applicants in anticipation of the new law, however we have also heard anecdotally of companies being turned away from banks who are waiting for more information about the new law. At the latest, banks should start accepting applications the day after the House of Representatives passes the stimulus package, which is expected to happen Friday. 

 

 

Basics of the PPP/Expanded SBA 7(a) Loans: 

• Loan can be used for payroll; salaries; sick/medical leave; healthcare plans; insurance premiums; mortgage interest payments; rent; utilities; and interest on any other debt incurred before February 15, 2020.

• Loans are issued by more than 1,800 participating banks nationwide, including large banks like Chase, Wells Fargo, and Capital One. Any bank that currently issues SBA loans should be able to issue this loan for you. 

• Interest rates are capped at 4%. 

• You can request a loan worth 2.5 months of payroll expenses (salaries/wages+benefits+sick leave+state/local taxes), up to $10 million. This is calculated based on your average monthly payroll expenses for the last 12 months. 

  • For calculation purposes, you cannot include amounts paid over $100,000 annual salary per any one employee. Ex. if an employee makes $110,000 a year, you can only include $100,000 in your calculation. 

• No fees, collateral, or personal guarantee required to apply. 

• Payments will be deferred 6 months to 1 year depending on your lender. 

• Note: Some venture-backed companies have expressed concerns that they will be ineligible for this program due to their affiliation with the other portfolio companies of their investors. We have received indication from the government that VC-backed companies in this situation will be eligible for this program. 

 

How much of the loan will be forgiven? 

• For the 8 week period after the origination of a PPP loan, the lender (backed by the government) will forgive all loan dollars that are spent on payroll expenses (max $100k annual per employee), or mortgage/rent/utility expenses that you were already paying before Feb. 15, 2020.

• However, the amount that the government forgives will be reduced proportionally by the reduction in your number of employees retained from the previous 1 year period, as well as any amount of salary/wages reduced by more than 25% per employee from their prior 1-year earnings.

• Note: You will only be forgiven for the amount of loan funds that you expend on the above list of expenses, and only during the 8-week period following origination of the loan.  Any loan funds received but not expended according to these limitations will not be forgiven, and they will be treated as regular loan amounts bearing interest up to 4%. So if you are treating this as a grant, make sure to accurately calculate the amount you'll need. 

 

Applying for the expanded 7(a) loan/Paycheck Protection Program: 

• Start reaching out to lenders NOW. If you have a relationship with a bank already, ask them when they will begin accepting applications and what documentation they will require. 

• If you have a CPA, ask them to fill out the attached CPA Small Business Relief form, or work on filling it out yourself. This may help in your discussions with lenders. 

• Start preparing your documents. The document requirements will likely be reduced, but you may to need to provide: 

  • 3 years of federal tax returns

  • 2019 profit and loss and balance sheet

  • Personal financial statement: https://www.sba.gov/sites/default/files/2019-09/Form%20413.pdf

  • State/local business certifications

 

 

Available now if you can’t wait a few days: SBA Economic Injury Disaster Loans (EIDL) 

All small businesses can apply for this emergency loan funding now. You must apply directly to the SBA. This program is likely to be expanded in the $2T stimulus package that the House of Representatives is set to send to the President tomorrow. 

 

Also in the stimulus package is a provision that will allow EIDL applicants to request a $10,000 advance on the loan and receive a check within 3 days of the request. This advance is not required to be repaid even if the loan is ultimately denied. If you decide to apply for EIDL there is no reason not to request this $10,000 advance once the stimulus package becomes law. 

 

EIDL Timeline: Currently 3-4 weeks for approval and closing, but wait times are likely to increase due to unprecedented demand. 

 

**It is currently unclear whether or not applying for EIDL may disqualify you from also applying to the PPP program detailed above, which has numerous advantages over EIDL. Unless circumstances require otherwise, we recommend you focus your efforts on PPP. 

 

We’ve attached our summary of the EIDL and application process here. 

 

If you have any questions, don’t hesitate to contact a member of the MCC team. We are here to support you and provide up to date information in this challenging time.