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All you need to know about forgivable CARES loans?

This is the most crazy and stressful time to be a business owner, not to mention just being a human in general. We started the BuyLocalNJ project to support local businesses and this is a time that requires even more. Given the unprecedented economic hardship, the government passed the $2.2 trillion stimulus bill called Coronavirus, Air, Relief and Economic Security Act (CARES) which makes $350 billion available to small businesses in the form of "Paycheck Protection Program" loans. Business owners may be eligible for loans that are completely forgivable if used for payroll, rent, mortgage interest, and utilities over an 8 week period.

According to the US Chamber of Commerce, New Jersey businesses may receive $11.7 billion in aid. Given how many businesses need help, it makes sense to act quickly and get in the front of the line for potential aid. These loans are expected to be paid quickly to help you. Contact your bank ASAP.

Paycheck Protection Program Loans

Here is the advice from Cindy Hawkins at Padgett Business Services:

"The CARES Act 7(a) Loan differs in some very distinct ways. First, the application process is to be streamlined for speed. Second the qualifications have been simplified and are based on the business records and not credit checks. Third and most importantly, it has a LOAN FORGIVENESS component that is beneficial to all businesses with less than 500 employees."

Like the virus itself, this situation is moving very quickly so banks are getting up to speed about these loans. If you talk to someone that isn't familiar with this loan, be persistent until you find someone who is.

Every business in need should contact its banker(s) directly. The CARES Act SBA Section 7(a) loan aka "Paycheck Protection Program" will be administered by banks and credit unions. Be sure that you are getting this specific loan as it is the one that is forgivable for certain expenses. 

There will be millions of other businesses looking to apply for these loans so be sure to get in line early to ensure speedy payment and available money.

You will need certain company documents, such as articles of incorporation, bylaws, operating agreements, and certificates of good standing.

You will also need to supply financial statements, tax returns, and payroll information. This is important as the lender is needs to get an idea of how much payroll help you will need over the next 8 weeks.

Cindy Hawkins says that they will take "2.5 times that monthly (payroll) average and the result is the amount of the loan. So, let’s say your monthly payroll averaged out to $10,000. The amount of loan you will receive is $25,000."

The maximum loan amount available to a borrower will be the lesser of $10 million or the product obtained by multiplying average total monthly payroll costs times 2.5.

Borrowers may be eligible for loan forgiveness for amounts spend during the 8 week period following the origination date of the loan for money spent on.

  • Payroll costs

  • Interest payments on any mortgage incurred

  • Rent on any lease in force before February 15, 2020

  • Utilities

The amount forgiven is affected if you lay off employees. If you fire employees and/or reduce hours of employees beyond 25%, then this will reduce the amount forgiven in proportion.

Borrowers that rehire workers laid off prior to the loan will not be penalized for having reduced payroll at the beginning of the period.

EIDL loans

The other option for businesses is SBA Economic Injury Disaster Loans (EIDL). These are low interest (3.75% for small businesses) for up to $2 million and a maturity of up to 30 years. Under the CARES Act, a borrower that receives a section 7(a) loan would not be able to receive an EIDL for the same purpose.

This isn't a forgivable loan so probably isn't as good but there is a $10,000 emergency advance (within three days of submitting an application) that will be paid while the applicant's loan is pending and is not required to be repaid!

You have to decide which loan is the right fit for your business.

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Hope this is all helpful. Stay strong and healthy! We will get through this crisis and come out stronger as a community!

The Chamber of Commerce has some great resources available:

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Have you had success getting a grant or loan during this time? Do you have tips for other business owners? Please share them in the comments below.

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About the Author: Chris Wang

Chris Wang

IMPORTANT DISCLOSURE INFORMATION 

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Runnymede Capital Management, Inc.-"Runnymede"), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Runnymede.  Please remember that if you are a Runnymede client, it remains your responsibility to advise Runnymede, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Runnymede is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Runnymede's current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Please Note: Runnymede does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Runnymede's web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

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