At Treasure our ethos is to provide tools for SMB to fulfill their full potential. The COVID-19 crisis and its economic impact has had a profound impact on SMB. In these difficult time the Treasure team has gathered some information about the help available combined with some suggestions to once again help SMBs the best we can.
Paycheck Protection Program (PPP)
Update (4/21): While the first $349Bn devoted to the PPP program ran out of funds As of April 21rst the Senate approved a new tranche of $310Bn for the PPP program.
Generally any small business with fewer than 500 employee's may be eligible for the PPP.
The PPP provides loans to small businesses up to 2.5x the average monthly payroll capped at $10mm. The rate is fixed at 1pct and and has a term of 2yr with 6-12 month deferment on payment of principal, interest, and fees.
The PPP has few condition attached to it and unlike theSBA it doesn't require personal guarantee. Namely the PPP Loans don't require collateral, personal guarantee or showing that credit is unavailable elsewhere.
The PPP loan will be forgiven if it is used in the 8weeks after the loan origination toward any of the following :
- Health care benefits and related insurance premiums
- Employee compensation (with some limitations for employees with salaries over $100,000 and exclusions for employees based outside the U.S.)
- Mortgage interest obligations (but not principal)
- Rent and utilities
- Interest on debt incurred prior to the loan
To receive this forgiveness, however, workers must stay employed through June 30 (though reducing workforce would likely reduce forgiveness eligibility, not void it altogether). Any amounts not used for the above expenses have a maximum 10-year term and the interest rate may not exceed4%.
Example: A small business with fewer that 500 employees and an average monthly payroll of$150,000 applies for a PPP loan with its bank. After attesting that theCOVID-19 virus has impacted its business operations, the business receives a loan of $375,000. Over the next 8 weeks it is determined that the business has incurred $350,000 in eligible payroll, rent and utilities expenses. The principle balance of the loan is reduced to $25,000 and amortized over 10 years at an interest rate not to exceed 4%. The first loan payment is due 12 months later. The program prohibits SBA from charging fees to the lender and the borrower.
How to Apply: PPP loans will be made available through SBA-approved lenders, starting as early as Friday April 3rd. Many banks are approved lenders. Contact your lender today to determine if they are an approved lender and, if so, to get on a wait list to apply as soon as the application is available. . Note that the application deadline is June 30 2020.
Application Form: here
Economic Injury Disaster Loan(EIDL)
For businesses that need more than a PPP loan, an EIDL can provide up to $2 million of financial assistance (actual loan amounts are based on amount of economic injury) to small businesses or private, non-profit organizations that suffer substantial economic injury as a result of the declared disaster (like COVID-19).
An EIDL does not have the same forgiveness provisions as a PPP loan.EIDL is secured by lien against the assets of the business. For loans more than $200k iIt furthermore requires a personal guarantee from the business owner (however no liens will be taken against real estate owned by the guarantor).
The EIDL is a 30 year term and interest rate of 3.75%,with payments deferred for 1 year.
A quick overview of the PPP and EIDL
For more information: SBA program for Corona_virus Small Business Owners
Economic Injury Disaster $10k Grant
In addition to the EIDL the SBA is offering an immediate $10,000 advance within three days of applying for an EIDL. To access the advance, you must first apply for an EIDL and then request the advance. The advance does not need to be repaid even if the general EIDL application is denied, but the amount of the advance must be deducted from any loan forgiveness amounts under a PPP loan.
How to Apply: same as EIDL here
Fed Main Street Lending Program
A new $600 billion “Main Street Lending Fund” to offer support for small and mid-sized businesses (less than 10,000 employes and less than $2.5Bn in revenue) who will have to pay between 2.5% to 4% above the secured overnight funding rate, which stands at zero. The loan minimum amount is $1mm and can't exceed 4 times the borrower EBIDTA (with a cap at $25mm). The plan is to offer 4 -year loans to companies, with principal and interest payments deferred for one year. The loans will be originated by banks, who will retain a 5% share and sell the rest to the Fed’s facility. Firms seeking Main Street loans must commit to make reasonable efforts to maintain payroll and retain workers. Borrowers must also follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under the CARES Act. Firms that have taken advantage of the PPP may also take out Main Street loans.
How to Apply: very little details so far. Application will likely to take place at at bank level and it doesnt look like the SBA will be involved. General information from the Fed can be found here
Employee Retention Tax Credit
The Employee Retention Credit (the ERC) is a credit against an employer’s portion of payroll tax for an eligible business that is forced to suspend or close operations due to COVID-19, or otherwise has a significant revenue decrease, and continues to pay its employees while not currently working.
The refundable credit is applicable for all wages paid between March 12, 2020, and before January 1, 2021. The amount of tax credit is equal to 50pct of the employee wage capped at $5,000 per year.
Eligibility for the credit begins with the first 2020calendar quarter in which the employer’s gross receipts declined by greater than 50 percent of the corresponding calendar quarter of the prior year, and ends with the calendar quarter following the calendar quarter in which the gross receipts exceed 80 percent of the corresponding calendar quarter of the prior year.
For moreInformation: FAQs:Employee Retention Credit under the CARES Act | Internal Revenue Service
Employer Payroll Tax Deferral
From March 25, 2020 - December 31, 2020, employers can defer paying their portion of social security payroll tax (6.2%). This only postpones payments, however; the amounts will ultimately have to be paid over to Treasury in two installments. Half of the deferred amount of payroll taxes from 2020 will be due December 31, 2021, with the remaining half due December31, 2022. Note that this also apply for self employment taxes too
Local and Federal Aid
Reach out to your municipalities to see if they have any program in place. For example here is a link for companies in San Diego (here)
What else can you do?
- Talk to your bank about delaying loan/mortgages payment
- Talk to your landlord about delaying your rent
- Start a dialogue with your creditors to see what options are available
- Talk with your suppliers to negotiate extended payment terms
- Communicate with your customers; see if they’re willing to pay ahead of schedule
- Review your subscription
- Terminate consultant contracts
- Talk to your employees about delayed pay
- Use this downtime to take care of all the things you didn’t have time to do when you were busy
- Employee training and cross-training
- Document SOPs
- Research and development project
- Reflect on your operation: anything you can improve? Any inefficiencies you can remove/ Any new initiative worth to pursue
- Plan on how your business can best emerge from the crisis when the economy starts picking up; because it will!
Chief Investment Officer
Treasure Investment Management, LLC
Disclaimer: The views and opinions in this piece are just the author's own, offered to the public at large and not to any one particular investor.