Breaking: Proposed Stimulus SBA Loan Provisions

March 27, 2020 at 1:00 pm |

To Our Clients and Friends:

We wanted to make you aware of a KEY provision in the stimulus bill that has passed the Senate that appears on the surface to present a real opportunity for most businesses. PLEASE NOTE THIS IS NOT YET LAW, SO DETAILS AND APPLICABILITY COULD CHANGE IN THE HOUSE DEBATE. In the meantime, however, we want to prepare you to act promptly if the law is as favorable as it appears to be — if we are too optimistic, we will deal with disappointment, but if we are too cautious, you may lose out on funding.

The bill appears to have a very low threshold for eligibility — a current reading of the draft appears to require eligible borrowers to make a good faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19. Documentation will be required by the Treasury and SBA.

Current details we have available are that SBA loans will be made available directly through the SBA and qualifying SBA lenders (usually a bank) for up to 2.5 times average monthly payroll costs over the last 12 months. Payroll costs are defined broadly and include wages, certain employee benefits, state and local taxes and certain payments to subcontractors. Loan principal will then be eligible for nontaxable forgiveness to the extent the amounts have been expended for eligible expenses during the 8-week period subsequent to receiving the loan. Eligible expenditures include payroll costs, mortgage interest, rent, and utilities. Forgiveness amounts will be reduced for any employee cuts or reductions in wages. To encourage employers to rehire workers previously laid off, borrowers that rehire workers previously laid off will not be penalized for having a reduced payroll at the time of the loan.

ACTION STEP — We recommend that you contact your banker immediately and let them know you will be applying for this new SBA funding under the SBA 7(a) loan program/Paycheck Protection Program, and ask them if there is anything you can do ahead of time to speed up application or approval from either the SBA or the bank.

There are many details beyond the scope of this alert, the purpose of which is to very timely put you on notice of what appears to be a generous benefit for you, your employees and your business. We want you to be prepared to move quickly by at least gathering payroll information for the past 12 months. We are hoping that the bill will get passed sometime today by the House of Representatives. The President is expected to sign it immediately — at which time we will review the final version. We then expect it will take at least a week for the US Treasury, SBA and banks to work out the details of the program before applications are accepted. Hopefully you will be early in the line at your bank.

Please let us know if you have any questions. Contact your service representative or feel free to reach out to Andrew Steckbeck (asteckbeck@simonlever.com), Marlin Benedict (mbenedict@simonlever.com) or Joshua Shroyer (jshroyer@simonlever.com), who are leading our focus on these matters.