Two Loans You May Not Have To Repay – Which You Should Apply Now


Congress did something unprecedented this week in terms of direct financial assistance to small and medium businesses. There is very little paperwork involved, the positive side is impressive, and this article will explain how to take advantage of it.

More precisely, under the new CARES law (aid, relief and economic security), your business may be eligible for two separate loans. One of these loans is fully repayable if used for its intended purpose, and the other loan has a component of $ 10,000 which is expected to be fully repayable. These programs are designed for businesses with fewer than 500 employees, although in one exclusion for the hard-hit hotel industry, hotel chains are allowed to have up to that number of employees by location.

These loans are very easy to apply for, as I will explain later in the article. You will want to act immediately because the demand should be unprecedented.

As I am not a tax specialist (or accountant) and I don’t even play it on Zoom, I called on one of the most expert people I know on the subject, the lawyer Mark W. Schweighofer by Stein, Sperling, Bennett. , DeJong, Driscoll, PC, a long-standing law firm in Rockville, Maryland.

Micah Solomon, lead contributor, Can you give me an overview of the CARES law (Coronavirus Aid, Relief and Economic Security) that Congress has just passed, especially since it can be useful to my readers? Let’s start with the Paycheck Protection Program (PPP):

Mark W. Schweighofer, lawyer, Stein, Sperling, Bennett, DeJong, Driscoll, PC: Paycheck Protection Program (PPP) Offers Business Loans –up to 100% forgivable, if used in a particular way–To cover short-term salary obligations and other approved expenses. Borrowers apply to designated commercial lenders and the loan is 100% guaranteed by the Small Business Administration (“SBA”). The purpose of the loan is to provide businesses with 500 or fewer employees (subject to certain exceptions) with a loan equal to 2.5 times the average monthly salary costs of each business, based on the company’s historical salary obligations (including benefits) one year delay before the loan is granted. The remuneration (including fringe benefits) paid by the company to each employee above $ 100,000 is not taken into account in determining the borrowing base and the total amount of the PPP loan is capped at 10 million dollars.

Based on the existing guidelines, the loan requires only limited documentation beyond that necessary to justify the historical payroll, no guarantees and no personal guarantees from business owners. The current interest indicated by the SBA is 1.0% with a repayment term of 2 years (unless waived).

Legislation provides that the loan proceeds can only be used for certain purposes, such as financing the wage bill, paying rent, paying public services, and paying off existing debt. Businesses are eligible for loan cancellation, but only for an amount equal to the above-mentioned authorized expenses which are incurred during the 8 week period following the date of the loan and provided that 75% of these expenses are used to finance salary costs and businesses are not required to pay taxes on the amount forgiven, which is not the case in most loan forgiveness situations.

Small businesses other than sole proprietorships became eligible to apply for the PPP loan on Friday, April 3; sole proprietors are eligible to submit claims on April 10. Currently, many SBA approved lenders are struggling to prepare their application packages. Demand is expected to be extremely high for these loans and, with only $ 349 billion allocated to the program, there is concern that demand will exceed availability.

I would like to offer practical advice, if you choose to apply: because the cancellation of the PPP loan, if granted, will be subject to a strict justification requirement, I recommend to all my clients to establish a bank account separate to own and administer any PPP loan proceeds. In this way, they are able to clearly establish that the loan proceeds were used for an authorized purpose. It sounds like an incredibly basic strategy, but given that we don’t have any current guidelines on the severity of SBA when it comes to tracing the use of the loan proceeds, I think it’s a solution to low cost which can save a lot of headache for business owners in the future.


Author’s note: how to apply

If your current bank is an SBA approved lender, start there. Here in the Pacific Northwest, Umpqua Bank, which my company uses, has done a lot of work over the past few days to get its online application up and running in time for yesterday’s opening. Michele Livingston, Executive Vice-President of Umpqua Bank and Director of Loans and Solutions for Small Business, tells me it’s an all-in-one situation right now, as they work throughout the weekend end to process requests received so far.

Robert Flanyak, president and CEO of CHROME FCU in southwest Pennsylvania, also burned a community banker in which I did customer service consulting work for the southeast. oil at the end of the evening when I caught up with it, obtaining the CHROME version of the online application and processing the resulting requests. Flanyak tells me that the level of interest in these loans is “unprecedented in recent memory.”


Solomon: Next, could you describe the relevant parts of the economic disaster loan program (EIDL)?

Schweighofer: The Economic Disaster Loan (EIDL) I is the second major loan element in the CARES law for small businesses (again, generally those with fewer than 500 employees). It is an extension of the SBA disaster loan program. This loan allows borrowers to borrow up to $ 2 million at an interest rate of not more than 3.75%. For loans under $ 200,000, the borrower is not required to provide personal guarantees. The SBA will request security if the loan exceeds $ 25,000, but failure to provide security does not disqualify the application. Unlike the PPP loan, the EIDL loan is obtained directly through the SBA, rather than through an approved lender.

One of the most attractive features of the EIDL is that borrowers can request an emergency advance of up to $ 10,000 which does not have to be repaid. even if the request is ultimately refused. In addition, the SBA should provide the advance within three days of receiving the borrower’s request.


Author’s note: how to apply

EIDL is very quick and easy to apply. and you can do it directly online. I guess it will take you eight minutes:

Pro tip: be sure to write or take a screenshot of the application number you see on the screen after you complete the application; you will not receive a confirmation email until your application has been reviewed.


Solomon: Would you like to spend a minute going over the CARES Act tax relief provisions as well?

Schweighofer: Beyond the loan provisions, the CARES law has provided many tax benefits to businesses. For example, there is a 50% refundable tax credit for wages paid by businesses to employees, subject to a cap of $ 10,000 per employee. To be eligible, the business must have been completely or partially closed by a government authority due to COVID-19 or else see a sharp decrease in gross revenue. For companies with more than 100 employees, the credit is only available for salaries paid to employees who no longer provide active services. For businesses with 100 or fewer employees, credit is generally available to all employees as long as they remain on the payroll.

In addition, the CARES law allows employers to defer payment of the employer’s share of social security taxes (the self-employed are allowed to defer half of the taxes on self-employment) until the end of 2020; 50% of the deferred amounts would be due on 12/31/2021 and the remaining 50% would be due on 12/31/2022.

The CARES law also made a technical correction to the 2017 law on tax reductions and jobs by restoring the treatment of leasehold improvements of commercial property made by owners or tenants as 15-year property (against property 39 years old), allowing immediate write-off via amortization of premiums.

Outside of CARES law, the Internal Revenue Service has extended the deadline for filing and paying many 2019 tax returns to July 15. This includes estimated first quarter tax payments.

Solomon: I know you have helped clients who are businessmen through several downturns. Can you share any philosophical or practical points that you would help guide others with whom it is their first?

Schweighofer: Take a deep breath, organize your thoughts and make a plan. Unlike many downturns, which tend to have a disproportionate impact on one sector of activity compared to the others, the COVID-19 pandemic reset the board of directors for almost everyone and did it almost all day. on the next day. Rely on your network; the people who helped you succeed will likely be the same people who will help you survive and recover. Trade as much as possible, even if it doesn’t generate immediate income for your business.

In addition, each downturn provides the opportunity to take stock of people, processes, technology and opportunities. Take advantage of the time to improve and modernize your approach and position your business to come out stronger when the tide turns.


Micah Solomon is a customer service and customer experience consultant, keynote speaker and trainer. He also works as a content creator and ghost writer and as an expert witness to customer service. Micah was recently named “World’s # 1 Expert in Turnaround Customer Service” by Inc. Magazine. Contact him directly at [email protected], visit his website or check out his new bestseller: Ignore your customers (and they will go away) (HarperCollins Leadership).


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