In the middle of COVID-19 challenges, the CARES ACT has become a life raft for most businesses. Knowing the details about PPP loans and Main Street loans could save your company from capsizing. This article will discuss recent updates to the PPP loan regulations from the PPP Flexibility Bill, as well as the relatively new Main Street Loans.
Updates to Regulations for PPP Loans
There have been a few updates to PPP regulations, many of them good news for business owners. To begin with, the deadline for the application is now June 30th. There’s plenty of money left to be given out: $128 billion dollars as of this writing. So, if you’re thinking about it, apply with your bank today. If you don’t have a go-to lender, SBA has a lender match system here.
There’s also been a change to eligibility requirements for PPP loans. Previous eligibility guidance prohibited businesses who had a 20 percent or greater shareholders who had been convicted of any type of felony at any time. Now, this has been clarified to narrow this definition (thus allowing more people with criminal records to be eligible). A PPP loan won’t be approved if an owner of 20 percent or more equity of applicants is:
- Currently incarcerated, on probation, or on parole.
- Presently subject to an indictment, a criminal information arraignment or other means, which criminal charges are brought to the jurisdiction.
- Has been convicted of a felony that has to do with fraud, bribery, embezzlement or a false statement in the loan application or an application for federal financial assistance within the last five years.
PPP Loans and Forgiveness
The rest of the changes are about PPP loan forgiveness. Firstly, there are now multiple forgiveness applications, including one that is far easier. It’s about half the size. Three categories of borrowers can use the easy form:
- Self-employed individuals with no employees.
- Companies that didn’t reduce salaries or wages of employees by more than 25% and didn’t reduce their hours
- Companies that have had reductions in business because of government-related COVID-19 directives (like social distancing) and did not reduce salaries or wages of employees by more than 25%
Other changes to forgiveness regulations include:
- Your forgiveness calculation can now be extended to 24 weeks if you applied before June 5th (although it cannot go over the 2020 calendar year).
- There’s a change in the mix of payroll and non-payroll costs that are used to guarantee full forgiveness of the loan. Prior to June 5th it was 75% to payroll, retirement, and health insurance costs. This has changed to a 60/40 balance. You can now use more money towards rent, mortgage, transportation, etc. If you do fall short of it, you still have a good chance of getting a large portion of the loan forgiven.
- There have been changes re repayments. Under previous rules repayments were due to start 6 months from the loan origination. Now there’s more flexibility. The repayments will start once the SBA releases the forgiven funds to your lender. This will probably be some time in 2021.
- Forgiveness applications are now due 10 months following the end of your covered period. Repayments will start then if you don’t file for forgiveness. If you got the loan before June 5th, your loan has a 2-year repayment window. Anybody who obtained a loan after June 5th gets a 5-year window. If you adopted pre-June 5th, work with your lenders to extend to 5 years. Your lender must approve it! Don’t assume that because the law changed, your terms did, too.
- Safe harbors: There are now some additional safe harbors. Prior to June 5th, the only safe harbor you needed was to become fully staff by June 30th. Or, you needed to show that you made an offer of reemployment to individuals and they declined it (and you then dealt with the unemployment office). The PPP Flexibility bill replaced the June 30th comparison date with a December 31st date. You now have until the end of the calendar year to show that you’ve become fully staffed. The alternative is an inability to return to your February 15th staffing levels due to COVID-19-oriented federal requirements, like social distancing and sanitation regulations.
Two things that haven’t changed? The interest rate has remained at 1% and the alternative coverage period has not gone away.
Main Street Loans
The Main Street Lending Program is a completely separate program from PPP loans. You can certainly apply for both. Main Street Financial Loans are being rolled out in June and the program is run by the Federal Reserve, not the SBA. It’s well-funded, with about $600 Billion available. The deadline to apply will be September 30th. One important difference: this loan is NOT forgivable.
As a loan, however, main street business loans are a great option. There is a wider network of banks that can provide it and the payment structure is pretty advantageous. Once you get the loan, there are no payments due for the first two years. As of year 3 and 4, you will have to pay 15 percent of the of the note in year (each year). The remainder of the loan, 70% needs to be paid at the end of the year five. The interest rate is the LIBOR plus three percent.
There are 3 different types of Main Street Loans. The minimum loan amount is going to be a quarter of a million dollars. The maximum will be either $35 million or four times of your previous year earnings before interest, taxes, depreciation, and amortization.
To be eligible for this loan you need to:
- Have been in business prior to March 13th of this year, or basically before the pandemic.
- Be based in the US.
- Not be a large company. You need to have fewer than 15,000 employees and less than $5 billion in annual revenue.
Note that if you’re ineligible for a PPP, you likely can’t get this. No banks or investment firms, and no industries that are illicit or sexual in nature.
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