The Paycheck Protection Program (part of the CARES Act) was approved last Friday afternoon. Businesses cannot yet apply for these loans. The PPP loan will be administered by the SBA under its 7 (a) loan program and businesses will apply directly with a financial institution when the loan application is made available. ServisFirst plans to participate in this program and priority will be given to our clients to process the loan applications when they become available. Because this legislation was just signed into law, the SBA has up to 30 days to provide guidance on terms and conditions to all lenders. Although we do not believe it will be that long, the exact timeframe of when the Bank can begin taking applications is currently unclear. We will provide information to you when that information is disseminated to the lenders.
Paycheck Protection Program (part of the CARES Act)
The PPP loan would help small businesses, non-profit or veterans organizations (fewer than 500 employees) impacted by the pandemic and economic downturn to make payroll and cover other expenses from February 15 to June 30 (known as the “covered period”). Sole proprietors, independent contractors and self- employed individuals who would be eligible for Emergency Sick Pay under the Families First Coronavirus Response Act (FFCRA) may qualify.
- Loan amount is the lesser of 2.5 times average monthly payroll cost over the last 12 months plus outstanding loan amount under EIDL (see specifics ) or $10,000,000.
- Payroll costs include salary, wage commissions or similar compensation payments (to the extent that it would not exceed an annualized amount of $100,000 to the individual employee), payments for group health benefits and retirement benefits, paid vacation, parental, family medical or sick leave (some exceptions)
- Allowed use of proceeds include payroll costs, interest portion of mortgage payments, rent, utilities and interest on other obligations incurred before 2/15/2020.
- There is an amount of the loan that is forgivable with no inclusion in taxable income. Amount is sum of payments made/money spent during an eight-week period after the origination date of the PPP loan for payroll costs, interest on covered mortgage covered rent and covered utilities.
- The amount forgivable is reduced for decreases in full-time equivalent (FTE) employees and decreased of more than 25% in compensation to employees making less than $100,000 on an annualized basis. Reductions in FTEs or compensation occurring between 2/15/2020 and 30 days after the enactment of the Act are not taken into consideration if restored by June 30, 2020. In other words, Borrowers that re-hire workers previously laid off will not be penalized for having reduced payroll at the beginning of the period.
- No personal guarantees or collateral required
- Maximum repayment term for balance (if any) remaining after forgiveness is 10 years
- Fixed rate of 4%
- Loan payments will be deferred for a period not less than 6 months and not more than 1 year.
As previously stated, as of 3/30/2020 we cannot accept applications and we will advise you as soon as additional information is available. If you think you are interested in applying, please prepare by collecting payroll information for the past 12 months.
ServisFirst is working hard to understand the new loan program and will have dedicated resources to process the loans. We are here to help you.
Two other loans are currently available to assist small businesses (highlighted below)
Small Business Administration (SBA) Loan Assistance
These loans are made to small businesses and business owners can apply directly through the SBA (not through the Bank). The type of loans the SBA provides include loans for physical and economic damage caused by a declared disaster. Use the link below for detail of the loans. https://disasterloan.sba.gov/ela/Information/TypesOfLoans
Economic Injury Disaster Loan (EIDL)
The current pandemic is categorized as an economic injury disaster loan.
- Application period is available through May 8, 2020
- Loans up to $2,000,000. SBA determines loan amount.
- There are eligibility requirements
- Rate of 3.75% for for-profit businesses; 2.75% for private, non-profit businesses (again see detail in the links)
- Up to 30-year repayment
- Proceeds used for fixed debt and working capital
For more information, please contact your bank.