The CARES Act now offers much needed financial assistance to business owners, but it can be a confusing process to navigate.

Below are summaries of the most important SBA programs, steps to follow, and the forms and other company documentation needed to successfully apply.

Eligible recipients include U.S. businesses that:

• Have been affected by COVID-19
• Supply to customers or businesses that have been affected, or
• Have been indirectly affected … making virtually all small businesses eligible to participate.

Note: Carofin and its affiliates are neither approved SBA lenders, attorneys, nor policy experts.  As we process SBA loans for our own businesses and assist our clients, we are passing on lessons learned.  New guidance and precedents are being set daily by the SBA. We will continue monitoring them as they evolve and communicate what we learn.  You should also reach out to the SBA directly.

Two most-critical SBA programs (each can be pursued, up to $10 million max.)

1.      Paycheck Protection Program (“PPP” — a new program):   Provides cash-flow assistance through loans to employers who maintain their payroll during this emergency.  If all employees remain on the payroll through June 30, 2020, these loans become grants (i.e., no repayment by the borrower).  If there are partial payroll reductions, only a proportionate amount of the loan becomes a grant.

2.      Economic Injury Disaster Loan (“EIDL” — a revised existing program):   Helps small businesses maintain operations by providing long-term, low-interest financing for broader use by the business.  Any application also allows companies access to the SBA for an automatic Emergency Advance Grant of $10,000 with no repayment required and a target approval turnaround of 3 days.

Other SBA Program Changes

• Existing 7(a) Loans: CARES forgives up to 6 months of interest, principal, and fee payments on existing 7(a) loans.
• Employee Retention Tax Credit:
  • Businesses of any size that are forced to close (but continue to pay employees) earn one-year credits against each employee’s share of Social Security payroll taxes;
  • Businesses that remain open (but experience a 50% revenue reduction in 1^st Quarter 2020 relative to 1^st Quarter 2019) qualify as well;
  • Qualified wages paid up to $10,000 per employee between 3/12/2020 and 1/1/2021 are eligible for a 50% payroll tax credit ($5,000 per employee; refundable if the amount exceeds the business’s payroll tax liability).
• 7(a) Express Loan: The maximum was increased from $350,000 to $1,000,000 with response turn-around 3 days after submission vs. the typical 3-5 weeks.

What to Do Now

Step 1: First apply for the Emergency Injury Disaster Loan (#2 above — “EIDL”) because:

• It is the fastest route to financing.  By applying for the EIDL directly through the SBA portal, it triggers an immediate evaluation. Other programs require you to set an appointment with an SBA-approved Lender who is now overwhelmed by an unprecedented influx of applications.
• Applying for an EIDL loan allows access to an Emergency Advance Grant ($10,000).
• You have the option to repay the EIDL loan with proceeds from a future (and forgivable) loan/grant, which will likely take longer to process. There are no prepayment penalties.
• Businesses are under no obligation to accept an EIDL if approved.

Step 2: Apply for the $10,000 Emergency Advance Grant (as described in Step 1 above)

• This grant (no repayment required) has a targeted 3-day turnaround from the date of application.  You can only apply after submission of your EIDL application.

Step 3: Apply for the Paycheck Protection Program

• To apply for funding, set an appointment as soon as possible (due to the potential limited availability) with an SBA-approved Lender.
• You can calculate the amount of the funding available to you (and forgiveness terms) using this PPP Loan Estimation Model.

Organize your financial information. There are free resources available for assistance.

1] Applicable Industry Standard

2] Applicable Industry Standard

3] Find an Approved Lender

4] The Online Application Portal

Required Documentation

Gathering and organizing financial information is never easy.  Below is a comprehensive list of forms and information that SBA lenders may request.

• PPP Loan Application Form
• Personal Financial Statement — SBA Form 413 
  • Required for:
    • Each principal owning 20% or more
    • Each general partner or managing member​
• Personal tax returns (Federal) for:
  • ​​Each principal owning 20% or more
  • Each general partner or managing member
  • Any owner who has more than a 50% ownership in an affiliate business
    • Affiliate business = parent company, subsidiaries, and/or any businesses with common ownership or management
• Request for Tax Return Transcript — ​IRS Form 4506-T​​ 
  • ​​Complete at least 2 of these:
    • One for the business itself
    • One for each personal guarantor
    • And, if applicable, one for:
      • Each principal owning 20% or more
      • Each general partner or managing member
      • Any owner who has more than a 50% ownership in an affiliate business:
        • Affiliate business = parent company, subsidiaries, and/or any businesses with common ownership or common management
• Business tax returns
  • Complete copies, including all schedules, of the most recent business tax returns
  • ​​If 2019 returns are not complete yet, you’ll also need:
    • ​​Profit & Loss — YTD 2020
    • ​Profit & Loss — Full Year 2019
    • ​​Balance Sheet — as of 12/31/2019
• Monthly Sales Figures — SBA Form 1368​ 
  • ​Monthly sales data
    • Beginning 3 years prior to the disaster and continuing through the most recent month-end
    • ​Estimates are OK if actuals are N/A
      • ​Identify estimates with “e” after the number
      • ​Estimated monthly sales figures must add up / match the full year information provided
• Payroll Records — IRS Form 941, IRS Form 940
  • Last 12 months of headcount and payroll records, including
    • Wage & Tax detail
    • Employee Benefits
    • Any other payroll/headcount related information you can provide
• Occupancy Costs
  • Copies of leases, etc. — anything related to occupancy which can document / confirm amounts paid, and related costs to be incurred going forward
  • Break out financials showing rent, CAM charges, utilities, mortgage payments and property taxes, if applicable, etc.
•  Summary of Fixed Overhead
  • Any other detail you can provide on the company’s fixed-cost base historically and going forward

For assistance in organizing your financial information, utilize one of the many free resources in your area, and do not hesitate to reach out to Carofin for input.