As many businesses are trying to analyze how to protect their resources, the protection of cash flow is a priority. The third Coronavirus Bill, Senate Bill 3548, aims to keep employees on the books and records of the employer through the use of government loans and debt forgiveness. The government’s goal is to keep employees off the unemployment line to help normalize the economy more quickly when we come out of the crisis.
Many employers have been tracking the SBA Disaster loans, which offer designated states and territories low-interest federal disaster loans for working capital to small businesses and non-profit organizations who are suffering substantial economic injury as a result of COVID-19. All of New York State has been designated an eligible disaster area; so qualified businesses and non-profit organizations are eligible to receive this funding at this time. To see other designated areas around the country, please click here.
Details of the SBA Disaster loans include:
- Loans offer up to $2 million in assistance and can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
- These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.
- The interest rate is 3.75% for small businesses and 2.75% for non-profits.
Expansion of Eligible Loan Participants
The Senate Bill looks to increase eligibility by expanding the definition of businesses eligible for the SBA loans to include any business concern, private non-profit organizations, or public non-profit organizations that employ not more than 500 employees. The goal is for this bill to become law by mid-week.
In evaluating the eligibility of a borrower for a loan, a lender can only consider whether the borrower was in operation on March 1, 2020, and had employees for whom they were paying salaries and payroll taxes. A borrower who already received assistance under section 7(b)(2) of the Small Business Act for purposes of paying payroll and providing payroll support is not eligible for this loan for the same purpose.
The bill did suffer a setback in the Senate March 22 when Majority Leader Mitch McConnell was unable to obtain the 60-vote supermajority he needed to put it on a path to a vote on final passage by March 23. The failed vote, along with the reduced GOP headcount because of members self-quarantining, likely sets up an intense round of partisan debate as well as stepped-up negotiations as Democrats demand changes to the measure and Republicans push to salvage a deal.
In general, the maximum amount of the loan is the lessor of:
- Multiplying the average total monthly payments for payroll for the period beginning March 1, 2019, and ending June 30, 2019, mortgage payments, rent payments, and payments on any other debt obligations incurred during the 1-year period before the date on which the loan is by 4 or $10,000,000.
The bill currently allows that the proceeds of the loan can be used for payroll support (including paid sick, medical, or family leave, and costs related to the continuation of group health care benefits during those periods of leave) employee salaries, mortgage payments, rent (including rent under a lease agreement), utilities and any other debt obligation that were incurred before March 1, 2020.
Additional Benefits: Including Fee Waiver and Debt Forgiveness
Additional benefits provided by the loans under Sections 1102 and 1105 under Senate Bill 3548 include fee waiver and loan forgiveness.
For the period beginning on March 1, 2020, and ending on December 31, 2020 with respect to each loan guaranteed, the Small Business Act will not collect fees or reduce fees to the maximum extent possible. During this time, the guaranteed loan amount will be 100 percent of the balance of the financing outstanding at the time of disbursement of the loan.
In addition, an eligible recipient can receive debt forgiveness in relation to the loan equal to the cost of maintaining payroll continuity beginning on March 1, 2020, and ending on June 30, 2020. Payroll costs, for purposes of debt forgiveness, are limited to individual compensation up to $33,333 between March 1, 2020, and June 30, 2020. In addition, payroll costs do not include payroll where a payroll tax credit was received due to the qualified sick leave or family leave which was provided under the Families First Coronavirus Response Act.
In the proposed bill, the amount of loan forgives may be reduced if there is a reduction in full-time equivalent employees when comparing the time frame between March 1, 2020, and December 31, 20202, and March 1, 2019, and June 30, 2019. Lastly, if salaries are reduced by more than 25% for employees who received less than $33,333 for the period beginning on March 1, 2019, and ending on June 30, 2019, or not more than $100,000 on an annualized basis during 2019, the amount of loan forgiveness could also be reduced.
There is also legislation being discussed regarding assistance for employers with greater than 500 employees, as well as assistance for self-employed persons and contract labor. The proposed Senate Bill 3548 also has numerous tax legislative changes for individuals and businesses. We will communicate those changes once the Bill is made into law
The Bonadio Group is here for you. We understand that the amount of information that is circulating during this time is immense, and as business owners you are trying to do what is best for your business and employees. As expressed by our CEO, Bruce Zicari, our firm has a robust plan in place for continuing operations without interruption, and we are confident in our ability to provide our clients with excellent client service. Please do not hesitate to contact us regarding any of the issues you are facing today. We are here to help you navigate this uncharted territory.
Please do not hesitate to contact your professional service team, or Pete Van Putte, of TBG Commercial Capital Partners in order to obtain more information regarding the loan process.
The information and advice we are providing for this matter relates to COVID-19 legislative relief measures. Because legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that could modify some of the advice and information provided to you, after the conclusion of our engagement. We therefore make no warranties, expressed or implied, on the services provided hereunder.