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SBA Lending During COVID-19

Understanding SBA Loans including the Paycheck Protection Program

blue check and pen iconPaycheck Protection Program

Since Congress passed the CARES Act Stimulus Package, we have spoken to many of our customers on the details of the Paycheck Protection Program (PPP) who it's for, what it can be used for, and how it may help their situation.  See some helpful information below.

With the recent extension to the program we will accept PPP applications until Wednesday, August 5, 2020 as long as funding remains available. 

Visit the US Treasury Cares site for the most recent information and the application. 

What is it?

The Paycheck Protection Program is part of the CARES Act Stimulus Package, and is a federal loan program aimed at helping small businesses impacted by COVID-19. The program allocates nearly $670 billion to the SBA to assist small businesses by offering 7(a) loans to borrowers, with an option to have a portion of the loan principal forgiven.
 

Who can apply?

  • Businesses with 500 or fewer employees
  • Self-employed individuals and independent contractors
  • Non-profit 501(c)3 organizations
  • 501(c)19 veterans organizations and tribal businesses

What are the other requirements?

  • The business must have been operational as of February 15, 2020 and had employees to whom it paid salaries and payroll taxes.
  • A business does not have to be shut down to be eligible. There is no other credit test.
  • The business must not have received loan proceeds from another 7(a) loan for the same purposes from February 15, 2020 – December 31, 2020.
  • The business must certify that uncertain economic conditions make the loan necessary to support operations and proceeds will be used to retain workers and maintain payroll or make mortgage, lease, and utility payments.

How much can I borrow?

Loan amounts are calculated as 2.5x your average monthly payroll costs1 during the 12-month period before loan origination, up to a maximum loan amount of $10 million.
This is determined by supporting documentation verifying the number of employees on payroll, including: payroll tax filings reported to the IRS, as well as state income, payroll and unemployment insurance filings.

How can the loan be used?

Loan proceeds can be used for overhead expenses and working capital needs, such as payroll costs, mortgage interest, rent, utilities, and interest on other debts incurred prior to February 15, 2020.

What are the loan terms?

  • Maximum interest rate of 1.0%  for the portion of the loan that is not forgiven
  • Loans issued prior to June 5 have a maturity of 2 years. Loans issued after June 5 have a maturity of 5 years.
  • No personal guaranty required
  • Unsecured (no collateral required)
  • Payment deferment of up to six months, with interest accruing during that time
  • No fee due to SBA
  • 100% SBA guaranty to the bank
  • No prepayment penalties

What portion of the loan will be forgiven?

The amount of loan forgiveness will be equal to the sum of approved expenses incurred during the designated period following the loan origination date. Eligible expenses for forgiveness will include:
  • Payroll Costs1
  • Interest (not principal) on business debts incurred prior to February 15, 2020
  • Rent
  • Utilities including electricity, gas, water, transportation, telephone ,and internet access.
The amount of forgiveness cannot exceed the original principal amount of the loan. Loan forgiveness is intended to encourage employers to retain employees. Therefore the loan forgiveness amount will be reduced proportionally by the reduction in employees during the covered period of February 15, 2020 – June 30, 2020 as compared to February 15, 2019 – June 30, 2019. 2

What happens to the balance of the loan?

The loan balance not subject to forgiveness is subject to a continued SBA guaranty.  You would continue to repay the loan in regular monthly payments as you would any other term debt to the bank. 

What documentation is needed to apply for loan forgiveness?

The SBA developed a PPP loan forgiveness application, which outlines what is needed for loan forgiveness, including the following:
  • Documentation verifying the number of employees on payroll during the 8 to 24 week period following loan origination, including payroll tax filings reported to the IRS, as well as state income, payroll and unemployment insurance filings.
  • Documentation including cancelled checks, payment receipts, accounting reports, etc. verifying payments on business debts, rent, and utility payments.
  • Certification from an officer or owner of the business/borrower that the information submitted is true and correct and that the amount for which forgiveness is being requested was used to retain employees, make interest payments on business debts, lease payments, and utilities. 

Other FAQs

  • If I receive a PPP loan, am I also eligible for a Disaster Assistance Loan (EIDL)?
    At this time, we are hopeful you can receive both as long as they are not used for the same costs . However, we are awaiting clarification from the SBA on if a business can obtain both an Economic Disaster Impact Loan (EIDL) and a PPP 7(a) Loan and how one may affect the other. We will update this page with what we learn.
  • If I am not an American National customer, can I still apply for the PPP loan?
    Due to the popularity of this program, our priority is  to first assist our existing customers so we can be sure to meet their needs.
  • How quickly will I receive the loan proceeds?
    While we are committed to funding these loans as quickly as possible, there is great demand for this program with certain aspects outside of our control. We appreciate your patience as we work with you through this evolving process.

The fine print:

At least 60% of the forgiven amount must have been used for payroll, broadly defined to include:
  • Employee salaries, wages, commissions, etc. up to $100,000 per year
  • Payment for vacation, parental, family, medical or sick leave
  • Severance payments
  • Group health insurance
  • Retirement plan contributions
  • State and local taxes assessed on such compensation
They do not include:
  • Federal tax withholdings
  • Compensation for non-US residents
  • Sick leave and family leave provided by the new Families First Coronavirus Response Act for which there are already tax credits.
This information is accurate and updated as of July 7, 2020. Terms and conditions are subject to change.

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