CARES Act and the SBA: What You Actually Need to Know Before Applying
by Nathan Artt, on April 2020
Between the media and the communication from consultants and other organizations, there is a lot of information about the CARES Act and what it entails. This blog post is not intended to repeat the same information that is available through multiple sources, but to provide some practical advice for you as you proceed with the application process for the Paycheck Protection Program (PPP) loan from the SBA under the CARES Act. We have spent quite a bit of time with attorneys, SBA lenders, and bank presidents hearing directly from them what this will entail, and we simply want to share that information with you.
Here is what we will cover:
- Timeline for applications and funding
- The SBA Application and Checklist
- What banks are telling us you need to know
- Important details that have been missed in broad stroke emails
- Information in regards to the forgiveness
The SBA sent the first set of documents and guidelines to its approved lenders last night, along with an example application. Banks are very much in a rush at the moment to get their own internal systems online in order to receive a large surge of applications, which we believe will be online no later than Friday, April 3rd.
Click the button below to download the document checklist and sample application form from the SBA.
While the application will be online soon, we have heard very directly from every bank that we have spoken to that the timeline for church loans will be impacted by a few things:
Lenders are only taking care of their own customers, at least at first
Every lender who is currently approved with the SBA is already getting inundated with phone calls. Also, banks have mostly reached out to their larger customers and have them ready to be the first loans that are underwritten. If you are applying for the Paycheck Protection Program (PPP) loan with a lender with whom you are not a customer, expect a very long delay between application and funding.
Churches will not be at the top of the stack
This does not apply to all churches. For those of you with larger amounts of debt, you may still be able to get your application through quickly, but that will depend on the strength of your relationship with the bank. Banks are mostly concerned with their real estate investment loans, where tenants are currently fighting to have to pay rent over Force Majeure clauses, and landlords are having trouble applying for Business Interruption Insurance. In short, real estate investment loans and loans to hospitality businesses (restaurants and hotels) will be the highest priority for most lenders.
Quality of the application will determine banks’ responsiveness
Every bank has agreed with this statement. Because of the demand, bankers are going to clear their deck with the easiest loans first, which means that every “t” must be crossed, every i” dotted, and all supporting documents must be in place. If they will have to go back to you for anything, just know your file will go to the bottom of the stack and will likely not be looked at again until the clean applications are funded.
Only work with existing SBA approved lenders
To view a list of approved SBA lenders, you can visit the SBA website. There are a number of banks who are rushing to get their applications for SBA approval completed, but that could take time. Lenders who are already set up to take on SBA loans are the best bet.
Work through your banking relationship
Again, there are going to be thousands upon thousands of applications filed in a day or two. The best way to ensure your application will be given higher priority is to have people internally within the bank helping you get through the application process.
The application process will take no more than 8 minutes for prepared borrowers. We are also being told that the approval (not origination) to funding will be somewhere around 72 hours. Meaning, once the banks look at a completed application (which may take a week or two), you should have funds in your account in no more than 72 hours.
How much will be forgiven???
The borrower will be eligible to receive forgiveness of the amount equal to the amount the borrower spent on the following during the 8-week period beginning on the origination of the loan:
- Payroll cost (defined below)
- Interest on mortgage obligations
- Rent on a lease agreement
- Utilities (Electric, gas, water, transportation, phone, internet)
- Forgiveness will be greatly reduced if there is a reduction in the number of FTE’s by 25% or more.
- Per the SBA: It is anticipated that not more than 25% of the forgiven amount will be for non-payroll costs!!!
- Please know that every bank is telling us that the origination process will be FAR easier than the forgiveness process. It is absolutely imperative that you keep a meticulous record of all expenses during this process.
Application and Calculation Information
Below are some other very important points that you will need to consider as you move forward with the loan process:
THIS IS NOT THE DISASTER RELIEF LOAN! If you have applied for any application on the SBA website or through any SBA lender this week or prior, you have completed the wrong application and put Paycheck Protection Program (PPP) Loan Approval in jeopardy for approval under the CARES Act, as you cannot be approved for this SBA loan with another SBA loan being in process.
As already reported through almost every channel, the loan amount can/will be equal to 250% of the average monthly Total Compensation (defined below), interest on mortgages, rent, utilities, etc. The formula for payroll will be defined as follows (non seasonal employers):
Total Payroll Costs
Average Number of FTE’s/1099 per month, starting on 8-week period from origination of loan
Average number of FTE’s/1099 from January 1, 2020 to February 29, 2020
The payroll is capped on costs above $100,000 on an annualized basis for each employee/1099 contractor.
Total compensation is defined under Section 3103 as the following:
“In this section (3103) “Total Compensation includes total salary, bonuses, award of stock, and other financial benefits provided by an eligible business to an officer or employee of an eligible business.” From our understanding, this would include ALL incentives for employees, including benefits, housings allowances, and any and all other benefits related to the employment of the contractor or employee.
Included in Payroll Costs:
- Salaries, wages, commissions, and other similar compensation
- Payment for vacation, sick leave, parental, medical leave
- Allowance for dismissal or separation
- Payments required for health insurance and health care benefits, including insurance premiums
- Payment of any retirement benefit
- State and local taxes
Not included in Payroll Costs:
- Compensation above $100,000 annually
- Payroll Taxes
- Compensation to individuals outside of the US
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