We were joined by Mike Lousteau, General Counsel and a partner at 12BF Venture Capital, for a couple of webinars to breakdown the SBA loan offering and clarify how to apply. We have summarized the key insights he shared with us in the form of an FAQ below.
*DISCLAIMER: Please be aware that this information is dynamic and may have changed since 4/6/2020.
– You can watch the recording here
– You can watch the follow-up Q&A session here
There are two distinct loan programs from the Small Business Administration (SBA), discussed in the CARES Act:
1. Paycheck Protection Program (PPP)
2. Economic Injury Disaster Loans (EIDL)
Payment Protection Program (PPP):
1. What does the PPP loan cover?
The PPP loan is designed to cover payroll expenses for 2.5 months, up to $10m.
2. What does ‘payroll expenses’ include?
– Actual compensation/salaries/wages/cash tips
– Vacation, family & parental leave
– Dismissal or separation payments
– Group healthcare
– Retirement benefits
3. Is the PPP loan forgivable?
Yes – If at least 75% of the loan is spent on payroll expenses and the money is used before June 30th, the loan is forgivable.
4. Who will process my PPP loan?
The process and terms & conditions is designed by the SBA. However the loans are made available by banks (independent lenders).
5. Is payroll for my 1099 employees covered by the PPP?
No – Independent contractors, vendors and subcontractors should file for their own PPPs. The treasury has specified that they are not ‘payroll costs’ and so do not qualify.
6. Who can apply for the PPP?
You do not need to be officially running a W2 payroll – If you’re a sole proprietor, where you don’t have technical employees, you can still apply for a PPP loan.
All the businesses you own must not contain more than 500 employees collectively.
7. When do I need to use the money by?
In order for the PPP loan to be forgiven, you have to use it by June 30th.
8. Can I use my quarterly tax deposits as part of payroll expenses?
No tax costs should not be counted as payroll costs.
9. Should I use one bank in favor of another?
The banks advise you to use your own bank – this is because they already have your information and so can process your application quickly. The banks will process their own clients first. If your own bank is not issuing PPP loans you can apply through Womply.
10. Should we expect to get taxed on any monies received through PPP?
No – Loans generally aren’t income, and forgiveness is explicitly tax free.
Economic Injury Disaster Loan (EIDL):
1. What can the EIDL be used for?
“Used for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses.” They are to compensate for your economic losses, such as lost revenue (they do not cover payroll). In most cases they will cover up to $2m.
2. Is the EIDL forgivable?
These loans are not forgivable. This means they do need to be paid back, though they have very low interest rates attached.
3. Who will process my EIDL Loan?
They are directly funded and managed by the SBA – they do not go through your bank. You can apply for them today on sba.gov
4. Can I get an advance on the loan?
The SBA is authorized to give you up to $10k within 3 business days, as an advance on the loan.
If you end up not getting the loan, the advance becomes a grant – you won’t have to pay it back.
5. If I get the $10,000 advance, and then get the EIDL loan approved later, will the $10,000 still count as a grant?
No, if you do get the loan, any advance becomes part of it.
6. Am I eligible for an EIDL if I currently have a chase line of business credit?
Yes – the requirement that you cannot have other lines of credit has been waived for this particular circumstance.
7. Should I file more than one application for the EIDL, if I have more than one business?
As long as all your businesses added together do not contain 500 employees, yes you should fill out applications for each individual company. Individual companies qualify.
1. Do the banks have the right to change the interest rates?
They don’t have the right to change the interest rates. The rate for the PPP is 1% and the rate for the EIDL can be anything up to 4%.
2. Do I need to reapply because the system has changed since I submitted my application?
No. Borrowers and lenders may rely on the laws, rules, and guidance available at the time of the relevant application. However, borrowers whose previously submitted loan applications have not yet been processed may revise their applications based on clarifications reflected in these amendments.
3. How do banks decide who gets funds, and how much each business gets?
This varies bank to bank, but generally banks prioritize their current lending clients.
4. Can I apply for both loans?
Yes you can – just don’t claim the same costs for both – make sure your loss is unrelated to payroll, it will most likely be lost revenue due to COVID-19
5. Is there a cost for Peek & Womply?
No – absolutely no fee for using this service.
2-page sample application has been published by the treasury
– You can download it here
– For further information they have also produced this FAQ
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