In light of the Coronavirus crisis, the SBA is doing what it takes to keep businesses going. Including a $10,000 advance you get in days that will be forgiven.
Below is an email that I received directly from Sarah Haymaker from the SBA that will help clarify some of the programs they are offering……
The loans through the Paycheck Protection Program (PPP) will be forgivable IF they are used for eligible purposes. That will include payroll expenses, mortgage interest/rent, and utilities for the business. We believe that because of the demand for these loans, 75% of the funds will need to be used for payroll related expenses in order for the debt to be forgiven. The way the bank (these will be provided by local banks, not directly from SBA) will calculate the loan amount will be based on your last 12 months average payroll expenses. Then you will be provided 2.5x the amount of you average monthly payroll and in order for the debt to be forgiven, you will have to keep all employees on the payroll for 8 weeks.
Here is how it reads at this point:
Eligible uses: Employee salaries, paid sick or medical leave, insurance premiums, and mortgage, rent, and utility payments.
Forgiveness: The amount spent by the borrower during an 8-week period after the origination date of the loan on: payroll costs, interest payment on any mortgage incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020. Employee and compensation levels must be maintained and payroll cost capped at $100,000 on an annualized basis for each employee.
Any advance amount received under the Emergency Economic Injury Grant Program will be subtracted from the amount forgiven.
As you know, the Economic Injury Disaster Loans (EIDL) are available directly from SBA. These can be used for any legitimate working capital needs, but you cannot use these funds for the same purposes you would use the PPP funds if you get one of those loans. So you would have to make sure you don’t use the EIDL funds for payroll, utilities, etc. because you must use the PPP funds for those expenses until you run out of them or the 8 weeks is up to make sure you can get that debt forgiven. The EIDL funds are to provide 6 months or your working capital needs, PPP provides 2.5x your monthly payroll to ensure you can keep staff on the payroll and off unemployment for 8 continuous weeks.
Also as a part of the application for the EIDL funds, you can request an advance of up to $10,000 that will be processed in just a few days. If you are approved for the advance, these funds will also be forgiven, regardless of whether you are approved for the full loan or if you decide not to take the loan. If you DO get an EIDL advance AND a PPP loan, the EIDL advance amount will reduce the amount of the PPP loan that can be forgiven.
Example: You get a EIDL advance for $10,000. Your PPP loan is approved in the amount of $75,000. The maximum amount of the PPP loan that can be forgiven if the funds are used for qualified expenses will now be $65,000 because the $10,000 will be forgiven, leaving you with a loan balance of $10,000.
Here are some details about the two products:
EIDL interest rate = 3.75%
PPP interest rate = 0.5%
EIDL term = 30 years, no matter the amount to minimize payments and enable businesses to pay off early with no penalties when they recover
PPP term = 2 years for any balance that is not forgivable
EIDL payments = automatically deferred for 12 months, interest begins accruing at the time of disbursement
PPP payments = deferred for 6 months, could be deferred an additional 6 months with lender agreement
EIDL fees = none
PPP fees = lender may charge an application fee, max. amount will be set by SBA
One of our partners put together a draft side-by-side comparison of the different products. While this is not official, I find it helpful at this point and you can find it here https://docs.google.com/spreadsheets/d/12xv4xcsg_9xoVeEE_Y1j2sicNbCvl2GAVinSowU2zgg/htmlview#
We will be talking more about this on a call Friday April 3rd.