U.S. Stimulus Package Guide

$600 Billion loan program provided by the Federal Reserve aimed at small and mid-size businesses

Who is Eligible?

• Loans will be available for businesses with zero to 15,000 employees or with 2019 revenue of less than $5 billion
• Small businesses are eligible and may apply even if they are participating in the Paycheck Protection Program
• Business must be based in the US with most of its employees in the US

Who is Not Eligible?

• Passenger air carriers (and related industry) that took advantage of CARES Act Section 4003(b)(1-3)
• Non-Profits Organizations
• Full list of ineligible businesses can be found by clicking here

Loan Summary

• Main Street Priority Lending Facility
  • Maximum loan amount equal to the lesser of:
    • $50,000,000 or
    • Up to six times 2019 EBITDA when combined with existing outstanding and undrawn debt
  • Minimum Loan of $250,000
  • MSPLF repayment schedule is 15% in Year 3, 15% in Year 4, and 70% in Year 5
• Main Street New Lending Facility:
  • Maximum loan amount equal to the lesser of:
    • $35,000,000 or
    • Up to four times 2019 EBITDA when combined with existing outstanding and undrawn debt
  • Minimum Loan of $250,000
  • MSNLF repayment schedule is 15% in Year 3, 15% in Year 4, and 70% in Year 5
• Main Street Expanded Lending Facility
  • Maximum loan amount equal to the lesser of:
    • $300,000,000 or
    • 35% of outstanding and undrawn available debt, or
    • Up to six times 2019 EBITDA when combined with existing outstanding and undrawn debt
  • Minimum Loan of $10,000,000
  • MSELF repayment schedule is 15% in Year 2, 15% in Year 3, and 70% in Year 4
• Interest rate equals LIBOR (1 or 3 month) plus 3%
• Loan term up to 5 years
• Interest payment are deferred for one year while principal payments are deferred for two years
• Origination fee of 1% for MSNLF/MSPLF, and .75% for MSELF paid up front
  • Lenders have discretion whether or not to charge this fee
• No prepayment penalty
• Loans may be Secured or Unsecured
• Restrictions:
  • Proceeds cannot be used to refinance existing debt
  • Dividends cannot be paid while the loan is outstanding or for 12 months after it is paid off
  • Stock buybacks cannot occur while the loan is outstanding or for 12 months after it is paid off
  • Compensation of employees that made over $425,000 in 2019 cannot be increased
• Borrowers will be required to attest that the financing is needed due to challenges from the pandemic and that they will make reasonable efforts to maintain payroll and employees during the term of the loan.

How To Apply

• The program is not yet operating but is expected to be available through eligible lenders in the upcoming weeks

$659 Billion expansion of the existing 7(a) loan program under the CARES Act.

*On April 24^th the program was officially expanded with an additional $310 billion in funding

• Businesses with 500 employees or less are generally eligible, subject to certain industry exceptions.  The 500-employee threshold includes all employees, including full-time, part-time, and any other status.
• Businesses with over 500 employees may be eligible by meeting any one of the following criteria:
  • Fewer than the number employees specified by SBA guidelines by industry – available  here;
  • Annual receipts under the amount specified by SBA guidelines by industry – available here;
  • Tangible net worth under $15 million; and average net income after Federal income taxes (excluding any carry-over losses) of $5 million or less for the two full fiscal years before the date of the application
• Businesses with common ownership may be subject to the affiliation rules – Click here for more information
• Self-Employed
  • Sole Proprietor, Independent Contractors, Self Employed and Non-Profits are also eligible
  • Partnerships are eligible at the partnership level and the individual partners should not apply separately
• Businesses that were in operation on Feb 15, 2020 and had employees or paid independent contractors
• Private Equity firms and Hedge Funds are not eligible
• Frequently Asked Questions may be accessed here

Loan Summary

• Loan amount up to 250% of the employer’s average monthly payroll costs for 2019 Maximum loan of $10M.
  • A single corporate group is limited to a maximum of $20M.  A single corporate group is defined as businesses that are majority-owned by a common parent.
• Payroll costs include:
  • Salary, Wages, Commissions (Capped at $100,000 per employee/self-employed individual)
  • Cash Tips or Equivalent – Based on employer records of past tips, or in absence of such records, a reasonable, good-faith employer estimate
  • Payment for vacation, parental, family, medical or sick leave
  • Benefits and insurance premiums
  • Payment of any retirement benefit
  • Payments of state and local employment taxes
• Payroll costs exclude:
• • The compensation portion of an employee/contractor that exceeds an annual salary of $100,000
  • Federal employment taxes
  • Payments to independent contractors. Independent contractors may apply for a PPP loan on their own.
• If the business was not operating during the period of February 15, 2019 and June 30, 2019, your average monthly payroll will be calculated using average monthly payroll costs from January 1, 2020 and February 29, 2020.
• Allowed uses of loan: Salaries, payroll costs, benefits, mortgage interest (not principal), rent, and utilities.
• Loan interest rate of 1%
• Loans taken after June 5th, 2020 will have a maturity of five years
• Loans taken prior to June 5th, 2020 may have the maturity extended from two to five years as long as borrower and lender mutually agree
• Payments may be deferred for 10 months after covered period ends
• No collateral or personal guarantee required
• All fees are waived
• The loan will be received as a lump sum and can’t be taken in multiple draws.
• Borrower required to certify in good faith that current economic uncertainty makes the loan necessary to support ongoing operations. This requirement includes that borrowers take into account their access to other sources of capital.
  • Borrowers that received a loan, but are ineligible have until May 18^thto repay the loan without any consequences

Loan Forgiveness

• 100% of the loan (principal and accrued interest) may be forgiven as long as the following criteria is met:
• 1. All loan proceeds used for covered expenses within the 8-week or 24-week period from the date of the loan.
  2. Reduction in salaries does not exceed 25%
  3. No reduction in number of Full-Time Equivalent employees
• Amount forgiven will be reduced by the $10,000 EIDL COVID-19 “advance” if applicable (see below)
• At least 60% of the forgiveness amount must be used for on payroll costs.
• No part of the loan forgiveness is considered income.
• Borrowers are now allowed to choose one of the following Payroll Covered Periods in calculating eligible payroll costs:
  • Covered Period – twenty-four-week (168-day) period that starts the day of the PPP loan disbursement. For example, if the Borrower received its PPP loan proceeds on Monday, April 20, the first day of the Covered Period is April 20 and the last day of the Covered Period is Sunday, October 4.
  • Alternate Payroll Covered Period – borrowers with a bi-weekly (or more frequent) payroll schedule may select their 168-day covered period for payroll costs to start on the first normal payroll cycle following the date of the PPP loan disbursement. For example, if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26 and the last day is Saturday October 10.
  • Please note: borrowers may elect an 8-week covered period if loan was made before June 5^th, 2020.
• Calculating Payroll Costs
  1. 8-week Covered Period
     • Employees – Wages are capped at $15,385 (8/52 x $100k)
     • Owner-Employee – Wages to owners are capped at $15,385 (8/52 x $100k)
  2. 24-Week Covered Period
     • Employees – Wages are capped at $46,154 (24/52 x $100k)
     • Owner-Employee – Wages to owners are capped at $20,833 (2.5/12 x $100k)
• Calculating Full-Time Equivalent Employees – Full-Time Equivalent employees is now based on a 40-hour work schedule.
  1. Employees working 40 hours or more are considered 1 FTE
  2. Employees working less than 40 hours will be considered a “fractional employee”. This is calculated by taking the amount of hours the employee worked divided by 40.
  3. Employers may count part-time workers as ½ FTE.
  4. With proper documentation of job offerings, employees that refuse to accept their job back will not decrease your FTE employee requirement.
  5. Borrower may measure FTE employees during the covered period vs. one of the following:
     • Average number of FTE employees on payroll between February 15th, 2019 and June 30th, 2019
     • Average number of FTE employees on payroll between January 1st, 2020 and February 29th, 2020
     • Seasonal employers use either of the above periods or any consecutive twelve-week period between May 1^st, 2019 and September 15^th, 2019
     • An FTE safe harbor allows employers to look to the FTE on December 31, 2020 under certain circumstances.
• If businesses are unable to meet the FTE requirement or unable to fully reopen due to compliance with government orders or guidance, they may be able to waive the headcount requirement entirely.
• If the business did have a reduction in salaries that exceeded 25% and/or it had a reduction in number of employees, your loan would not be 100% forgiven. The percent decrease of either salaries or number of employees must be applied to the loan principal when calculating loan forgiveness.
  • Example: If the business has 100 employees and 10 were laid off, the loan would only be eligible for 90% forgiveness, while the business is responsible for the other 10% plus interest (only on the balance due).
• Request for loan forgiveness must be submitted to the lender with documentation certifying the use of the proceeds.

Applying For Forgiveness

• Form EZ (available here https://home.treasury.gov/system/files/136/PPP-Forgiveness-Application-3508EZ.pdf)) – more simplified application that borrowers may use as long as they attest to one of the following:
  • Self-employed with no employees
  • Borrowers did not reduce salaries and average paid hours by more than 25% and did not reduce headcount
  • Borrower did not reduce salaries and average paid hours by more than 25% and was unable to operate due to COVID-19
• Standard Application (available here) consists of four components
  • PPP Loan Forgiveness Calculation Form
  • PPP Schedule A
  • PPP Schedule A Worksheet
  • PPP Borrower Demographic Information Form (Optional)
• Documentation Needed for application
  • Payroll
    • Bank account statements or third-party payroll service provider reports for the periods that overlap with the covered or alternate-covered period
    • Tax Forms 941 and state quarterly business and individual wage reporting
    • Unemployment insurance tax filings
    • Payment receipts, canceled checks or account statement documenting employee health insurance and retirement plan contributions.
  • Non-Payroll Costs
    • Mortgage Interest Payments– copy of lender statements from February 2020 and during the covered period
    • Business rent or lease payments– current lease agreement and receipts or canceled checks of February 2020 and during the covered period
    • Utility Payments– copy of invoices from February 2020 and those paid during the covered period
  • All documentation related to the borrower’s PPP loan must be maintained it its files for six years after the date of the loan is forgiven or repaid in full

Self-Employed Individuals

• Eligible if in operation as of 2/15/2020. Further guidance to be provided for those not in operation on this date.
• Calculating the loan amount
  • Sole Proprietor
    • No Employees – Monthly Average of 2019 Schedule C Net Profit (Capped at $100,000) x 2.5
    • 1 or more employees – Monthly Average of 2019 Schedule C Net Profit (Capped at $100,000) plus payroll costs x 2.5
  • Partnership
    • Monthly Average of Self-Employment Income of the generate active partners for 2019 plus payroll costs x 2.5
  • Forgiveness
    • Eligible expenses include owner compensation replacement
    • Owner compensation replacement is limited to a maximum of $15,385 (8/52 of 2019 net income) for 8-week covered period or $20,833 (2.5/12 of 2019 net income) for a 24-week covered period.
    • 60% of the PPP loan proceeds must be used for payroll costs including owner compensation replacement
    • All other covered expenses:
      • Covered benefits for employees but not owners
      • Mortgage Interest
      • Rent payments
      • Utility payments

How To Apply

• The program is currently available to small businesses
• Independent contractors and self-employed individuals may apply starting April 10^th.
• Applications are processed through banks and other participating financial institutions.
• A sample of the application is available here
• Anyone looking to apply should contact their existing banking relationship to inquire. Many applications are available electronically on your bank’s website.
• Required documentation includes payroll tax forms or equivalent payroll processor records
  • For Self-Employed Individuals
    • 2019 1099-misc, invoice, bank statement, or book of record that establishes you are self-employed
    • 2020 invoice, bank statement, or book of record establishing you were in operation on or around 2/15/2020
  • The deadline to apply for a loan is August 8, 2020 or until funds made available are exhausted.

The Economic Injury Disaster Loan is an existing program administered by the Small Business Administration (SBA) and has been made available due to COVID-19 being declared as a nationwide disaster. The CARES Act has greatly expanded the EIDL with providing the SBA with $10 billion to help support.

Who is Eligible?

• Businesses are expected to certify and demonstrate that they were impacted by the COVID-19 pandemic
• Eligibility is based on amount of revenue and number of employees depending on the businesses specific industry.
  • Look up the criteria by industry here

Loan Summary

• Small businesses, nonprofits, sole proprietors and ESOPs affected by COVID-19 may qualify for loans up to $150,000.
• Borrowers can receive up to $10,000 as a grant. The amount received is equal to $1,000 per employee up to a maximum of $10,000.
• Interest rate of 3.75% for small businesses, 2.75% for nonprofits.
• The maximum unsecured loan amount is $25,000 and no personal guarantee request on loans below $200,000.
• Loan repayment terms vary by applicant with a maximum of 30 years.
• Use of Loan Proceeds
  • Allowed: Accounts Payable, Fixed Debts, Payroll, Operating Costs
  • Not Allowed: Business Expansion, Refinance of existing Debt, Payments on other federal Loans, Criminal of Civil Fines and Penalties, Physical Repairs, and/or Dividends or Disbursements to owners except as related to their performance of service.
• The first month’s payments are deferred a full year from the date of the promissory note.
• Applicants may have an existing SBA loan, however the loans may not be consolidated.

How to Apply

**Please note, as of April 16th, SBA is unable to accept new applications at this time for the (EIDL)-COVID-19 related assistance program (including EIDL Advances) Applicants who have already submitted their applications will continue to be processed on a first-come, first-served basis.

• Applications can be submitted online – https://covid19relief.sba.gov/#/
• No other documentation is needed to submit an application online, however the following documentation may be requested by the SBA subsequent to the submission of your application:
  • Tax Information Authorization (IRS Form 4506T), completed and signed by each principal owning 20% or more of applicant business, general partner, general manager, or owner who has 50% ownership interest in affiliate business.
  • Federal tax returns.
  • Personal Financial Statement (SBA Form 413) completed, signed, and dated by the applicant and each principal, general partner or managing member.
  • Schedule of Liabilities listing all fixed debts (SBA Form 2202)
  • Additional documentation can be requested.

The Small Business Express Loan was an existing program prior to The CARES Act. Due to this new legislation, the loan amount has increased from $350,000 to $1 million and will speed up the approval process to 36 hours.

Loan Summary

• Provides a term-loan or line of credit to small businesses
• Loan up to $1M
• Approval may be completed within 36 hours
• Loans are made through a financial institution, interest rates may vary.

• Small businesses may apply for both the Economic Injury Disaster loan and the Paycheck Protection program. In order for the PPP to still be eligible for forgiveness, you cannot use both loan proceeds to cover the same type of expenses.
• • The $10,000 grant a business received from the EIDL is deducted from any potential forgiveness related to the PPP Loan.
• Only for existing EIDLs, not related to COVID-19, are allowed to be refinanced into the PPP loan.
• Affiliation Provisions – Both related to EIDL and PPP
  • Multiple subsidiaries may not apply individually if any of the following apply:
    1. Common Ownership (assumed over 50%)
    2. Common Management
    3. Franchise Agreements
  • These provisions require further clarification from the SBA