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SBA Loan Programs related to COVID-19 Crisis

Dear Clients of SKJ & Company, P.S.:

We understand many of our clients who own businesses are experiencing economic difficulties due to this crisis. Our firm is doing its best to deliver information on new resources that is useful for our clients. Small Business Administration (SBA) has been implementing new loan programs to assist business owners related to COVID-19 crisis. We are writing this email to share some information and key features about these new loans.

As of 3/30/2020, we are aware of following two SBA loan programs.

If you are looking to obtain an SBA loan, you may choose one of the followings:

  • Economic Injury Disaster Loan (EIDL)

  • Paycheck Protection Program (PPP)

Economic Injury Disaster Loan (EIDL)

1. Overview

a. Unlike traditional SBA loans, this loan is requested directly to SBA.

b. The loan is to assist borrowers with loss of property and/or revenue due to the disaster.

c. The loan has following features:

                                                             i.      Loan Amount: Up to $2 Millions

                                                            ii.      APR: 3.75% for businesses, 2.75% for Nonprofit

                                                           iii.      30 year-term depending on ability to repay

                                                           iv.      Some payments are waived depending on qualification

d. EIDL offers Loan Advance up to $10,000 when the loan is submitted.

                                                             i.      The advance does not have to be repaid.

                                                             ii.      The advance is not a taxable income.

e. EIDL Applicant may also be eligible for Express Bridge Loan up to $25,000.

                                                             i.      The loan is for need of quick working capital.

                                                             ii.      Once EIDL is approved, the balance is transferred to the final loan amount.

2. Application Process

a. Fill out the initial application on SBA’s website:

b. An SBA Officer is assigned.

c. The following documents and forms are submitted:

                                                             i.      Business Loan Application

                                                            ii.      Form 4506-T

                                                           iii.      Most recent business tax return OR Year-End Financial Statements.

                                                           iv.      Year-To-Date Financial Statements

                                                           v.      Personal Financial Statements

                                                           vi.      Schedule of Liabilities

                                                          vii.      Schedule of Monthly Sales Figures

d. Once the above documents are submitted and the final loan document is signed, you may receive $25,000 through Express Bridge Loan.

e. SBA Officer will notify you with the maximum loan qualified.

Paycheck Protection Program (PPP)

  1. Overview

    a. Unlike EIDL, PPP Loan is requested through SBA-approved lenders.

    b. PPP loan is only available to businesses with 500 employees or less.

                                                           i.      This requirement may be waived if the business is in the industry of which the NAISC Code begins with 72.

c. The loan has following features:

                                                           i.      Loan amount: 2.5 times of monthly average payroll costs.

                                                          ii.      10-year term, 4% APR.

                                                         iii.      If qualified, 100% of the loan is forgiven and will not have to be repaid.

        • Forgiveness of the debt is not a taxable event.

d. Like EIDL, PPP Loan also offers $10,000 advance.

                                                           i.      This advance does not have to be repaid.

                                                          ii.      The advance is not a taxable income.

2. Application Process

a. The loan is requested through a SBA approved lender.

b. This program is announced on 3/27/2020 and we do not have more details about the process. We will keep you posted.

3. If qualified, 100% of the debt is forgiven.

a. The loan must be used to pay rent, utilities, interest on existing loan and payroll expenses.

b. During the 8-week period after the loan is disbursed, Full-time Equivalent (FTE) must be equal to or more than:

                                                             i.      FTE between 2/15/2019 and 6/30/2019; or

                                                             ii.      1/1/2020 and 2/29/2020.

c. No compensation can be paid more than $100,000 to a single employee.

d. Employee compensation cannot be reduced by more than $25%.

e. Any unforgiven balance will be paid over 10 years at 4% APR.

Which loan is right for me?

We understand that there are various SBA loan programs and it confuses many of our clients. Please note of the following when choosing the right loan program. In the meantime, please also consider your own financial circumstances upon making the final decision.

  • Paycheck Protection Program (PPP)

    • This loan is recommended to those with high wage-related expenses.

    • We also recommend this loan to those who have high rent, utilities and interest expenses.

    • The principal may be forgiven, but the maximum loan amount is limited to 2.5x of monthly payroll expenses. Therefore, it is important to consider if the loan is sufficient to keep the business as a going concern through this crisis.

      • If PPP is not a good option for you, consider EIDL along with Paid Leave Tax Credit.

      • Information on Paid Leave Tax Credit may be found here.

  • Economic Disaster Injury Loan (EIDL)

    • If you do not qualify for PPP or the loan term is not right for you.

    • We encourage you to apply even if you have the history of bankruptcy or loan default.

How Our Office Can Assist

(Please understand that we have no specific guidance on PPP loan application process. We will keep you posted)

1. To assist with your loan application, we will do the following:

  • Preparing & Submitting the initial application through SBA’s website.

  • Preparing & Submitting other forms and required documents.

Please understand that we are unable to assist you if our firm does not provide write-up and payroll services to you.

2. We are unable to offer assistance on following matters

  • Making decision on which loan (PPP or EIDL) to choose

  • Determining loan amount

  • Checking the status of loan application

  • If you have already started the application process

3. If you would like to proceed with loan application, please –

  • Let us know that you would like to proceed with EIDL Loan.

  • Please make sure to include business name.

  • We will follow up by replying to your email.

Thank you,

SKJ & Company, P.S.

Seke Jung, CPA