The Federal Reserve Board’s Main Street Lending Program should be up and running by the end of May, Fed Chairman Jerome Powell told the Senate Banking Committee Tuesday.

The Main Street program is intended to provide support for small and mid-size businesses that were in good financial condition before the onset of the COVID-19 crisis. It will offer 4-year loans to companies employing up to 15,000 workers or with revenues up to $5 billion. Principal and interest payments will be deferred for one year.

The Main Street program is one of several loan initiatives introduced by the federal government in response to the dramatic slump in economic activity brought on by the pandemic.

Firms seeking Main Street loans must commit to make reasonable efforts to maintain payroll and retain workers. Borrowers must also follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under the CARES Act. Firms that have applied for loans through the Small Business Administration’s Paycheck Protection Program may also take out Main Street loans.

Eligible banks may originate Main Street loans or use Main Street loans to increase the size of existing loans to businesses. Banks will retain a 5 percent to 15 percent share of the loans, selling the remainder to the Fed’s Main Street facility, which will purchase up to $600 billion of loans.

The minimum loan size to be offered through the program is $500,000. The maximum is $200 million. Those thresholds were adjusted in response to public input. Powell said further adjustments to the program may be made going forward.

RBT CPAs will provide updates regarding the Main Street program and other financial assistance programs as information becomes available. If you have any questions, please contact us.

Following the recent announcement that the Small Business Administration would review any Paycheck Protection Program loans made in amounts exceeding $2 million, the agency today issued guidance extending an automatic safe harbor to borrowers receiving PPP loans with an original principal amount of less than $2 million. These borrowers “will be deemed to have made the required certification concerning the necessity of the loan request in good faith,” SBA said in updates to its PPP FAQ today.

Borrowers that received PPP loans for amounts over $2 million will be subject to review by the SBA for compliance with program requirements, including the certification of economic need. “If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness,” SBA said.

The guidance comes shortly before a May 14 deadline for PPP borrowers who did have access to other sources of capital to return funds. SBA added that borrowers who repay their loans after receiving notification from the SBA will not be subject to administrative enforcement or referrals to other agencies. Additionally, SBA’s determination regarding the necessity of the loan request will not affect the SBA loan guarantee.

Updated 4/23/20 – Effective April 23, 2020, Congress has approved an additional $310 billion in funding for the Paycheck Protection Program, $50 billion for the EIDL program and $10 billion for emergency EIDL grants.

This reserves certain amounts for the loans to be made as follows (which may make it easier for smaller businesses to access funding):

• $30 billion for loans made by Insured Depository Institutions and Credit Unions that have assets between $10 billion and $50 billion; and
• $30 billion for loans made by Community Financial Institutions, Small Insured Depository Institutions, and Credit Unions with assets less than $10 billion

SBA has also clarified eligibility for large companies with adequate sources of liquidity (see FAQ).

Three options for middle market businesses

1. U.S. Small Business Administration (SBA) Economic Injury Disaster Loan Assistance (EIDL) – SBA program that existed before COVID-19 that offers up to $2 million in loans for eligible businesses.
2. Paycheck Protection Program – Created through the Coronavirus, Aid, Relief, and Economic Security Act (CARES Act), the Paycheck Protection Program expands SBA support for businesses with loans of up to $10 million.
3. Updated 4/9/20 Main Street Lending Program – The Main Street Lending Program is intended to facilitate lending to small and medium-sized businesses. It contains two facilities. The Main Street New Loan Facility (MSNLF) offers new loans from a minimum of $1 million up to a maximum of $25 million, and it is the program that we believe most clients will access. The Main Street Expanded Loan Facility allows banks to add to the size of an outstanding loan issued prior to April 8, 2020, to a business customer, rather than initiate a new loan.

EIDL Program
The Coronavirus Preparedness and Response Supplemental Appropriations Act enacted on March 6, 2020, expanded the EIDL Program to provide SBA loans to qualified small businesses. Qualifying businesses can receive up to $2 million in loans to be used for working capital and ordinary expenditures. The actual amount available to any business is tied to its economic injury from COVID-19. EIDLs are applied for directly with the SBA and funded by the SBA.

Paycheck Protection Program
Updated: 4/7/20 – 12:00 CT to reflect $100,000 applies to cash compensation. This program provides federally guaranteed loans to small businesses. The program is administered by the SBA through its 7(a) lending program under which the SBA guarantees loans made by banks to qualifying borrowers. Loans can be as large as 2.5 times a borrower’s monthly payroll costs for its U.S. employees (cash compensation of any employee above $100,000 must be subtracted) as measured over the prior twelve months, or $10 million, whichever is smaller.

Loans under the Paycheck Protection Program are third-party loans with SBA guarantees.

Updated 4/9/20 Main Street Lending Program
The Main Street Lending Program includes two loan facilities, and most clients will apply under the Main Street New Loan Facility.

• The Main Street New Loan Facility (MSNLF) is for new loans, and the maximum loan size is the lesser of $25 million or an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times that borrower’s 2019 EBITDA. This is the facility the majority of our clients will access.
• The Main Street Expanded Loan Facility (MSELF) allows banks to add to the size of an outstanding loan issued prior to April 8, 2020, to a business customer, rather than initiate a new loan. The maximum loan size is the lesser of $150 million, 30% of the borrower’s existing outstanding and committed but undrawn bank debt, or an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed six times that borrower’s 2019 EBITDA.

Rates and debt forgiveness

EIDL Program
Interest rates are 3.75% for small businesses and 2.75% for nonprofit organizations. EIDL loans are not forgivable.

Paycheck Protection Program
Loans shall bear interest at a rate of 1%. The maturity of the loans is 2 years. Payments of both principal and interest will be deferred for six months following the date of loan disbursement; however, interest will accrue during that period. Provided a company retains existing employees at or near current salary levels, the debt will be forgiven to the extent that 75% of proceeds are used in an eight-week period following loan origination for payroll costs, and the remaining 25% can be forgiven for mortgage interest, rent and utility payments during the same eight-week period. The amount forgiven will be reduced by a formula that takes into consideration any reduction of workforce. Any employee cuts or wage reductions will reduce forgiven amounts.

Updated 4/9/20 Main Street Lending Program
Loans shall bear interest at an adjustable rate of SOFR + 250-400 basis points. The term of the loan is four years. Amortization of principal and interest is deferred for one year. Prepayment is permitted without penalty. Loans are not forgivable.

Eligibility

EIDL Program
An eligible small business is determined by the number of employees and average annual sales with different standards per industry. Most manufacturing companies with 500 or fewer employees and most non-manufacturing businesses with average annual receipts under $7.5 million can qualify. There are exceptions by industry.

Loans under this program are only available to borrowers that can show they are unable to meet their existing financial obligations as a result of the COVID-19 crisis. Cannabis businesses, casinos and racetracks are among the businesses that are not eligible.

Paycheck Protection Program
Eligible recipients must have 500 or fewer employees whose principal place of residence is in the United States and have been in operation on February 15, 2020. The borrower must certify in good faith that current economic uncertainty makes this loan request necessary to support ongoing operations.

Businesses must meet one of the following requirements:

1. 500 employees or fewer, or
2. Meet applicable employee size standards for their North American Industry Classification System (NAICS), or
3. 500 employees or fewer by location for those in the accommodation and food service industry as defined by their NAICS code, or for any business acting as a franchise that is assigned a franchise identifier code by the Small Business Administration, or
4. Sole proprietors, independent contractors and other self-employed individuals, including gig economy workers, or
5. Charitable tax-exempt organizations (including religious organizations), described in section 501(c)(3) of the Internal Revenue Code, and veterans organizations, described in section 501(c)(19), are eligible to participate in the program. However, other tax-exempt organizations (e.g., those described in sections 501(c)(4), (5), and (6)) are not eligible to participate.

Household employers or businesses engaged in any activity that is illegal under federal, state, or local law are not eligible.

The SBA website offers a size standards tool to assist in determining whether a business is classified as small.

Updated 4/4/20 – 09:30 CT: The SBA published affiliation rules applicable to the Paycheck Protection Program on April 3, 2020.

Updated 4/20/20 The SBA published additional guidance for individuals with self-employment income who file a Form 1040, Schedule C. If you are a partner in a partnership, you may not submit a separate Paycheck Protection Program loan application for yourself as a self-employed individual. Instead, the self-employed income of general active partners may be reported as payroll cost, up to $100,000 annualized, on a Paycheck Protection Program loan application filed by on or on behalf of the partnership.
This guidance also provides additional eligibility for officers and key employees of a PPP Lender that own less than a 30% equity interest in another otherwise eligible business and eligibility for certain businesses that receive revenue from legal gaming. The additional guidance should be reviewed very carefully as there are limitations for both of these eligibility
items.

Updated 4/23/20 The SBA published FAQ to address businesses owned by large companies with adequate sources of liquidity.

In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a Paycheck Protection Program loan under the standard established by the CARES Act and the Paycheck Protection Program regulations at the time of the loan application. Borrowers must certify in good faith that current economic uncertainty makes this loan necessary to support their ongoing operations, which includes taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their operations in a manner that is not significantly detrimental to their business. Companies must be prepared to demonstrate to SBA, upon request, the basis for their certification. Any borrower that applied for a PPP loan prior to the issuance of guidance on April 23, 2020 and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.

Updated 4/9/20 Main Street Lending Program

Businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues are eligible. The business must be created or organized in the United States with significant operations in and the majority of its employees in the United States. See FAQ for details on attestations and restrictions on compensation, stock repurchase and capital distribution.

How to apply

EIDL Program

The EIDL program is applied for directly with and administered by the SBA. An online application is available at https://www.sba.gov/disaster-assistance/coronavirus-covid-19.

Paycheck Protection Program

Applicants must submit SBA Form 2483 with payroll documentation to a participating lender. The Small Business Administration has a network of at least 1,800 approved lenders that process small business loans and intends to add more of them. If a client’s bank is not an SBA approved lender, they can contact the SBA to find one.

Updated 4/9/20 Main Street Lending Program

Applicants should connect directly with their lender.

Updated 4/23/20 – to reflect PPP update from SBA Q&A for EIDL, Paycheck Protection Program and Main Street Lending Program

Additional details on the loan programs are available in the subsequent Q&A.

What direct financial assistance programs for small and medium enterprises (SMEs) have become available as a result of the COVID-19 virus outbreak?

EIDL Program

The Coronavirus Preparedness and Response Supplemental Appropriations Act enacted on March 6, 2020, expanded the EIDL Program to provide SBA loans to qualified small businesses. Qualifying businesses can receive up to $2 million in loans to be used for working capital and ordinary expenditures. The actual amount available to any business is tied to its economic injury from COVID-19.

Paycheck Protection Program

Updated: 4/7/20 – 12:00 CT to reflect $100,000 applies to cash compensation. This program provides federally guaranteed loans to small businesses. This program is administered by the SBA through its 7(a) lending program under which the SBA guarantees loans made by banks to qualifying borrowers. Loans can be as large as 2.5 times a borrower’s monthly payroll costs for its U.S. employees (cash compensation of any employee above $100,000 must be subtracted) as measured over the prior twelve months, or $10 million, whichever is smaller.

Updated 4/9/20 Main Street Lending Program

The Main Street Lending Program includes two loan facilities.

• The Main Street New Loan Facility (MSNLF) is for new loans, and the maximum loan size is the lesser of $25 million or an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times that borrower’s 2019 EBITDA. This is the facility that the majority of our clients will access.
• The Main Street Expanded Loan Facility (MSELF) allows banks to add to the size of an outstanding loan issued prior to April 8, 2020, to a business customer, rather than initiate a new loan. The maximum loan size is the lesser of $150 million, 30% of the borrower’s existing outstanding and committed but undrawn bank debt, or an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed six times that borrower’s 2019 EBITDA.

How much is available to SMEs through each program?

EIDL Program

Qualifying business can receive up to $2 million in loans to be used for working capital and ordinary expenditures. The actual amount available to any business is tied to their economic injury from COVID-19.

Paycheck Protection Program

Updated: 4/7/20 – 12:00 CT to reflect $100,000 applies to cash compensation. Eligible recipients may be able to receive up to $10 million. Businesses that have been in existence for at least a year can obtain the lesser of 2.5 times their average monthly payroll for U.S. employees for the previous 12 months (cash compensation of any employee above $100,000 must be subtracted), less the outstanding amount of any EIDL taken between January 31, 2020 and April 3, 2020 (exclusive of any advance under an EIDL COVID-19 loan that does not have to be repaid) or $10 million, whichever is smaller. Entities not in existence for the previous 12 months can use their average monthly payroll for the period from January 1, 2020, through February 29, 2020.

Updated 4/9/20 Main Street Lending Program

Loans are a minimum of $1 million.

• The maximum loan size in the Main Street New Loan Facility (MSNLF) is the lesser of $25 million or an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times that borrower’s 2019 EBITDA. This is the facility that the majority of our clients will access.
• The maximum loan size in the Main Street Expanded Loan Facility (MSELF) is the lesser of $150 million, 30% of the borrower’s existing outstanding and committed but undrawn bank debt, or an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed six times that borrower’s 2019 EBITDA.

How do I calculate the maximum amount I can borrow?

Paycheck Protection Program

Updated: 4/7/20 – 12:00 CT to reflect $100,000 applies to cash compensation. The following methodology, which is one of the methodologies contained in the Act, will be most useful for many applicants.

1. Step 1: Aggregate payroll costs (defined in detail below) from the last twelve months for employees whose principal place of residence is the United States.
2. Step 2: Subtract any cash compensation paid to an employee in excess of an annual salary of $100,000 and/or any amounts paid to an independent contractor or sole proprietor in excess of $100,000 per year.
3. Step 3: Calculate average monthly payroll costs (divide the amount from Step 2 by 12).
4. Step 4: Multiply the average monthly payroll costs from Step 3 by 2.5.
5. Step 5: Add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020, less the amount of any “advance” under an EIDL COVID-19 loan (because it does not have to be repaid).

Updated 4/20/20 If you are eligible as an individual with self-employment income and file a Form 1040, Schedule C, with no employees, 2019 Form 1040 Schedule C line 31 net profit amount should be used in the same methodology above in place of aggregate payroll costs. If the net profit amount is over $100,000, reduce it to $100,000. If this amount is zero or less, you are not eligible for a Paycheck Protection Program loan. Steps 3 – 5 would then be followed.

If you are eligible as an individual with self-employment income and file a Form 1040, Schedule C, with employees, 2019 Form 1040 Schedule C line 31 net profit amount should be used in the same methodology above in place of aggregate payroll costs. If the net profit amount is over $100,000, reduce it to $100,000. Also, include the 2019 eligible gross wages and tips paid to your employees plus any pre-tax employee contributions for health insurance or other fringe benefits excluded from Taxable Medicare wages and tips, subtracting any amounts paid to any individual employee in excess of $100,000 annualized. Finally, include the 2019 eligible employer health insurance contributions, retirement contributions, and state and local taxes assessed on employee compensation. Steps 3 – 5 would then be followed.

Updated 4/9/20 Main Street Lending Program

The maximum loan size in the Main Street New Loan Facility (MSNLF) is the lesser of $25 million or an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times that borrower’s 2019 EBITDA. This is the facility that the majority of our clients will access.

The maximum loan size in the Main Street Expanded Loan Facility (MSELF) is the lesser of $150 million, 30% of the borrower’s existing outstanding and committed but undrawn bank debt, or an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed six times that borrower’s 2019 EBITDA.

What qualifies as “payroll costs?”

Paycheck Protection Program

Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of:

• Salary, wages, commissions, or similar compensation;
• Cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips);
• Payment for vacation, parental, family, medical, or sick leave;
• Allowance for separation or dismissal;
• Payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement;
• Payment of state and local taxes assessed on compensation of employees; and
• For an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.

Is there anything that is expressly excluded from the definition of payroll costs?

Paycheck Protection Program

Updated: 4/7/20 – 12:00 CT to reflect $100,000 applies to cash compensation. Yes. The Act expressly excludes the following:

• Any compensation of an employee whose principal place of residence is outside of the United States;
• The cash compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary;
• Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees; and
• Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127).

Do independent contractors count as employees for purposes of Paycheck Protection Program loan calculations?

No, independent contractors have the ability to apply for a Paycheck Protection Program loan on their own so they do not count for purposes of a borrower’s loan calculation.

What are the approved uses for the funds?

EIDL Program

Can be used for working capital and ordinary expenditures. Page 10 Last updated April 23, 2020

Paycheck Protection Program

Updated: 4/7/20 – 12:00 CT to reflect $100,000 applies to cash compensation. Funds can be used to cover payroll costs or employee benefits, certain operating costs described below and interest on debt obligations.

Allowable uses of the funds include:

1. Payroll costs (cash compensation of any employee above $100,000 must be subtracted);
2. Costs related to the continuation of group health care benefits during periods of paid sick, medical or family leave, and insurance premiums;
3. Mortgage interest payments (but not mortgage prepayments or principal payments);
4. Rent (including rent under a lease agreement);
5. Utilities; and f. Interest on any other debt obligations that were before February 15, 2020;
6. Refinancing an SBA EDIL loan made between January 31, 2020 and April 3, 2020 (see separate FAQ on refinancing an EIDL).

Additional information related to loan forgiveness is available below (See FAQ on loan forgiveness).

Updated 4/20/20 For individuals with income from self-employment who file a 2019 Form 1040, Schedule C, funds from a Paycheck Protection Program loan can be used for owner compensation replacement calculated based on 2019 net profit in place of payroll costs.

Updated 4/9/20 Main Street New Loan Program

Specific use of funds is not defined for loans through the Main Street Lending Program. Attestations and restrictions are listed in the eligibility FAQ.

Who is an Eligible Recipient?

EIDL Program

An eligible small business is determined by the number of employees and average annual sales with different standards per industry. Most manufacturing companies with 500 or fewer employees and most non-manufacturing businesses with average annual receipts under $7.5 million can qualify. There are exceptions by industry.

Loans under this program are only available to borrowers that can show that they are unable to meet their existing financial obligations as a result of the COVID-19 crisis. Cannabis businesses, casinos and racetracks are among the businesses that are not eligible.

Paycheck Protection Program

Eligible recipients must have 500 or fewer employees whose principal place of residence is in the United States and have been in operation on February 15, 2020. The borrower must certify in good faith that current economic uncertainty makes this loan request necessary to support ongoing operations.

Businesses must meet one of the following requirements:

1. 500 employees or fewer, or
2. Meet applicable employee size standards for their North American Industry Classification System (NAICS), or
3. 500 employees or fewer by location for those in the accommodation and food service industry as defined by their NAICS code, or for any business acting as a franchise that is assigned a franchise identifier code by the Small Business Administration
4. Sole proprietors, independent contractors and other self-employed individuals, including gig economy workers.
5. Charitable tax-exempt organizations (including religious organizations), described in section 501(c)(3) of the Internal Revenue Code, and veterans organizations, described in section 501(c)(19), are eligible to participate in the program. However, other tax-exempt organizations (e.g., those described in sections 501(c)(4), (5), and (6)) are not eligible to participate.

Household employers or businesses engaged in any activity that is illegal under federal, state, or local law are not eligible.

The SBA website offers a size standards tool to assist in determining whether a business is classified as small.

Updated 4/4/20 – 09:30 CT: The SBA published affiliation rules applicable to the Paycheck Protection Program on April 3, 2020.

Updated 4/9/20 Main Street Lending Program

Businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues are eligible. The business must be created or organized in the United States with significant operations in and the majority of its employees in the United States.

In addition to certifications required by applicable statutes and regulations, the following attestations will be required with respect to each eligible loan:

• The lender must attest that the proceeds of the loan (or the upsized tranche of the loan under MSELF) will not be used to repay or refinance pre-existing loans or lines of credit made by the lender to the borrower.
• The borrower must commit to refrain from using the proceeds of the Main Street Lending Program loan (or the upsized tranche of the loan under MSELF) to repay other loan Page 12 Last updated April 23, 2020 balances. The borrower must commit to refrain from repaying other debt of equal or lower priority, with the exception of mandatory principal payments, unless the borrower has first repaid the Main Street Lending Program loan in full.
• The lender must attest that it will not cancel or reduce any existing lines of credit outstanding to the borrower. The borrower must attest that it will not seek to cancel or reduce any of its outstanding lines of credit with the Main Street lender or any other lender.
• The borrower must attest that it requires financing due to the exigent circumstances presented by the coronavirus disease 2019 (“COVID-19”) pandemic, and that, using the proceeds of the loan (or the upsized tranche of the loan under MSELF), it will make reasonable efforts to maintain its payroll and retain its employees during the term of the loan.
• The borrower must attest that it meets the EBITDA leverage condition (existing outstanding and committed but undrawn debt, does not exceed four times the borrower’s 2019 EBITDA for MSNLR and six times the borrower’s 2019 EBITDA).
• The borrower must attest that it will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under section 4003(c)(3)(A)(ii) of the CARES Act. These conditions, which are summarized below, apply through the duration of the loan and for 12 months after the date on which the loan is no longer outstanding.
  • May not repurchase an equity security that is listed on a national securities exchange of the business of any parent company of the business, except to the extent required under a contractual obligation that was in effect on the date of enactment of the CARES Act (March 27, 2020).
  • May not pay dividends or make other capital distributions with respect to the common stock of the business.
  • Comply with limitations on compensation under section 4004 of the CARES Act, which are summarized below:
    • Officers or employees with total compensation over $425,000 in calendar year 2019 shall not receive total compensation in excess of what was received by the officer or employee in calendar year 2019. Severance pay or other benefits received upon termination shall not exceed twice the total compensation received by the officer or employee in calendar year 2019.
    • Officers or employees with total compensation over $3 million in calendar year 2019 shall not receive total compensation over $3 million and 50% of the excess over $3 million of what was received in calendar year 2019. Page 13 Last updated April 23, 2020
• Lenders and borrowers will each be required to certify that the entity is eligible to participate in the program, including in light of the conflicts of interest prohibition in section 4019(b) of the CARES Act.

What do I need to provide to obtain funds?

Paycheck Protection Program

Applicants must submit SBA Form 2483 with payroll documentation to a participating lender. The Small Business Administration has a network of at least 1,800 approved lenders that process small business loans and intends to add more of them. If a client’s bank is not an SBA approved lender, they can contact the SBA to find one.

Updated 4/12/20 The statute of the CARES Act will require payroll tax forms, withholdings, paystubs, etc. to substantiate the payroll amounts.

How long does it take to obtain funds?

EIDL Program

The typical time frame for approval is two to three weeks with funds disbursed within five to seven days thereafter. Timelines may be extended given the increased applications.

Paycheck Protection Program

It is worth noting that loans under the Paycheck Protection Program are third-party loans with SBA guarantees, which may contribute to the speed at which funds will be accessible.

Applicants must submit SBA Form 2483 with payroll documentation to a participating lender.

Updated 4/9/20 Main Street Lending Program

Applicants should connect directly with their lender.

What are interest rates and payment terms?

EIDL Program

Interest rates are 3.75% for small businesses and 2.75% for nonprofit organizations. Payment terms are determined by whether there is partial or full refinancing of an existing loan.

Paycheck Protection Program

Loans shall bear interest at a rate of 1%. The maturity of the loans is two years. Payments of both principal and interest will be deferred for six months following the date of loan disbursement; however, interest will accrue during that period.

Updated 4/9/20 Main Street Lending Program

Loans shall bear interest at an adjustable rate of SOFR + 250-400 basis points. The maturity of the loan is four years. Amortization of principal and interest is deferred for one year. Prepayment is permitted without penalty. Loans are not forgivable.

Is the loan forgivable?

EIDL Program

Loans under the EIDL program are not forgivable.

Paycheck Protection Program

Yes. Provided a company retains existing employees at or near current salary levels, the debt will be forgiven to the extent that proceeds are used in an eight-week period following loan origination for the following:

• Payroll costs;
• Interest payments made on any mortgage incurred prior to February 15, 2020;
• Payment of any lease in force prior to February 15, 2020; and
• Payment on any utility for which service before February 15, 2020.

With respect to the items above, not more than 25% of the loan forgiveness may be attributable to non-payroll costs.

The amount forgiven will be reduced by a formula that takes into consideration any reduction of workforce. Any employee cuts or wage reductions will reduce forgiven amounts. Employers are allowed to rehire any employees previously let go before the application without penalty. The loan program is designed to encourage companies to retain as many employees as possible. If companies reduce headcount or payroll below certain thresholds, they may be ineligible for the full forgiveness.

Certain documentation is required to be retained, provided as proof and certified to include with an application for loan forgiveness as detailed in Section 1106(e).

Proceeds from any advance up to $10,000 on an EIDL loan will be deducted from the loan forgiveness amount.

Any amount of the loan that is forgiven is not includible as taxable income.

Updated 4/20/20 For individuals with income from self-employment who file a 2019 Form 1040, Schedule C, owner compensation replacement calculated based on 2019 net profit limited to eight weeks’ worth is also eligible for inclusion in proceeds used above.

Updated 4/9/20 Main Street Lending Program

Loans under the Main Street Lending Program are not forgivable.

Updated 4/9/20

Does applying for other programs or having existing funding under other programs preclude an organization from applying for funding under the Paycheck Protection Program? Can an EIDL be rolled over? Can a company take a Paycheck Protection Program loan and a Main Street Lending Program Loan?

Borrowers are precluded from receiving SBA funding under the Paycheck Protection Program and an Economic Injury Disaster Loan (EIDL) for the same purpose (i.e., double dipping). Updated 4/9/20 – Borrowers who have taken a Paycheck Protection Program loan may also take out a loan under the Main Street Lending Program. A company cannot participate in both Main Street New Loan Facility and the Main Street Expanded Loan Facility.

Borrowers who received an SBA EIDL loan from January 31, 2020 through April 3, 2020 may apply for a Paycheck Protection Program loan. If an EIDL loan was not used for payroll costs, it does not affect eligibility for a Paycheck Protection Program loan. If an EIDL loan was used for payroll costs, the Paycheck Protection Program loan must be used to refinance the EIDL loan.

Proceeds from any advance up to $10,000 on an EIDL loan will be deducted from the loan forgiveness amount for the Paycheck Protection Program loan.

A Paycheck Protection Program loan may affect a company’s ability to qualify for other tax credits and incentives outlined in the CARES Act.

How are private equity-backed companies and sponsors impacted by the CARES Act? What about venture capital backed companies?

Updated 4/4/20 – 09:30 CT: The SBA published affiliation rules applicable to the Paycheck Protection Program on April 3, 2020. Summary details are below, but the full rules linked in Page 16 Last updated April 23, 2020 the prior sentence should be reviewed and companies should consult with their attorney and lender on ultimate eligibility.

The SBA requires applicants to aggregate their operations with those of any affiliates as defined by the SBA. The aggregated company for purposes of the SBA must not exceed the small business standards. An affiliate exists when one business controls or has the power to control another, or when a third party controls or has the power to control both businesses.

Private equity-owned companies may be considered affiliated when all of the other portfolio companies and employee numbers are combined. This is a very specific analysis that must be done on a case by case basis. If the total employee threshold is exceeded, a company does not qualify. See above (FAQ on eligibility) for more information.

This also applies for venture capital firms that control more than 50% of voting stock or when two or more venture capital firms hold the largest stake, compared to that of other investors.

Rules are also in place for affiliations arising under stock options, convertible securities and agreements to merge.

Affiliation may also arise when there is an identity of interest between close relatives with identical or substantially identical business or economic interests.

The affiliation rules are waived for:

1. Any business with less than 500 employees that is assigned a NAICS 72 code
2. Any business that operates as a franchise and is assigned an SBA franchise identifier code
3. Businesses that receive financial assistance from a company licensed under section 301 of the Small Business Investment Act of 1958 (note that further clarification is needed to determine if SBIC small businesses that also have investment from conventional private equity still qualify for the waiver)

The affiliation of a faith-based organization to another organization is not considered an affiliation if the relationship is based on a religious teaching or belief or otherwise constitutes a part of the exercise of religion.

What are the tax changes in the bill?

See tax alert issued on March 26, 2019 for details on tax changes resulting from the CARES Act.

How do I apply?

EIDL Program

The EIDL program is applied for directly with and administered by the SBA. An online application is available at https://www.sba.gov/disaster-assistance/coronavirus-covid-19.

Paycheck Protection Program

Applicants must submit SBA Form 2483 with payroll documentation to a participating lender. The Small Business Administration has a network of at least 1,800 approved lenders that process small business loans and intends to add more of them. If a client’s bank is not an SBA approved lender, they can contact the SBA to find one.

Updated 4/9/20 Main Street Lending Program

Applicants should connect directly with their lender.

Added 4/4/20 – 17:00 CT:

Is there guidance available on services we can provide to clients around the CARES Act?

Yes. Our NORM group has published CARES Act Services Guidance, and it is available on our Client Response Center.

Added 4/23/20 – 18:30 CT:

Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a Paycheck Protection Program loan?

In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a Paycheck Protection Program loan under the standard established by the CARES Act and the Paycheck Protection Program regulations at the time of the loan application. Borrowers must certify in good faith that current economic uncertainty makes this loan necessary to support their ongoing operations, which includes taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their operations in a manner that is not significantly detrimental to their business. Companies must be prepared to demonstrate to SBA, upon request, the basis for their certification. Any borrower that applied for a Paycheck Protection Program loan prior to the issuance of guidance on April 23, 2020 and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.

Download this information with the link below.

https://www.rbtcpas.com/wp-content/uploads/2020/04/Stimulus-Details-and-FAQ.pdf

Millions of eligible Americans have already received their Economic Impact Payments (EIPs) via direct deposit or paper checks, according to the IRS. Others are still waiting. The payments are part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Here are some answers to questions you may have about EIPs.

Who’s eligible to get an EIP?

Eligible taxpayers who filed their 2018 or 2019 returns and chose direct deposit of their refunds automatically receive an Economic Impact Payment. You must be a U.S. citizen or U.S. resident alien and you can’t be claimed as a dependent on someone else’s tax return. In general, you must also have a valid Social Security number and have adjusted gross income (AGI) under a certain threshold.

The IRS also says that automatic payments will go to people receiving Social Security retirement or disability benefits and Railroad Retirement benefits.

How much are the payments?

EIPs can be up to $1,200 for individuals, or $2,400 for married couples, plus $500 for each qualifying child.

How much income must I have to receive a payment?

You don’t need to have any income to receive a payment. But for higher income people, the payments phase out. The EIP is reduced by 5% of the amount that your AGI exceeds $75,000 ($112,500 for heads of household or $150,000 for married joint filers), until it’s $0.

The payment for eligible individuals with no qualifying children is reduced to $0 once AGI reaches:

• $198,000 for married joint filers,
• $136,500 for heads of household, and
• $99,000 for all others

Each of these threshold amounts increases by $10,000 for each additional qualifying child. For example, because families with one qualifying child receive an additional $500 Payment, their $1,700 Payment ($2,900 for married joint filers) is reduced to $0 once adjusted gross income reaches:

• $208,000 for married joint filers,
• $146,500 for heads of household,
• $109,000 for all others

How will I know if money has been deposited into my bank account?

The IRS stated that it will send letters to EIP recipients about the payment within 15 days after they’re made. A letter will be sent to a recipient’s last known address and will provide information on how the payment was made and how to report any failure to receive it.

Is there a way to check on the status of a payment?

The IRS has introduced a new “Get My Payment” web-based tool that will: show taxpayers either their EIP amount and the scheduled delivery date by direct deposit or paper check, or that a payment hasn’t been scheduled. It also allows taxpayers who didn’t use direct deposit on their last filed return to provide bank account information. In order to use the tool, you must enter information such as your Social Security number and birthdate. You can access it here: https://bit.ly/2ykLSwa

I tried the tool and I got the message “payment status not available.” Why?

Many people report that they’re getting this message. The IRS states there are many reasons why you may see this. For example, you’re not eligible for a payment or you’re required to file a tax return and haven’t filed yet. In some cases, people are eligible but are still getting this message. Hopefully, the IRS will have it running seamlessly soon.

Download this page as a PDF with the link below.

https://www.rbtcpas.com/wp-content/uploads/2020/04/Economic-Impact-Payments-QandA-1.pdf

We are writing to inform you of additional developments related to the Economic Injury Disaster Loan (EIDL) program. Applications for the low-interest disaster loan program in the wake of the coronavirus crisis have far exceeded the funds available for the program, resulting in the apparent rationing of cash to applicants, according to reports by several media outlets.

The disaster loans are administered by the U.S. Small Business Administration and represent an expansion of a program that has traditionally assisted businesses after natural disasters like hurricanes and floods. In response to the COVID-19 outbreak and resulting economic crisis, the SBA began to offer disaster loans of up to $2 million to small businesses, with up to $10,000 of that amount promised as a grant that would be issued within three days of applying and would not require repayment.

The response to the program has been overwhelming. SBA officials said Thursday that the program has received nearly 4 million applications seeking $383 billion, but that Congress has provided only $17 billion in funding for the loans, according to reports by The Wall Street Journal and CNBC.

As a result, it appears that the initial loan disbursements will be for just a fraction of the amount many businesses are seeking. The New York Times reported Thursday that initial payments of EIDL loans are being limited to $15,000. That amount is in addition to the grant of up to $10,000. Those grants are taking longer than the promised three days, and it now appears that they will be considerably smaller than $10,000 for many small businesses.

The SBA has responded to the tremendous demand for grants by limiting them to $1,000 per employee for up to 10 employees, according to U.S. Senator Brian Schatz of Hawaii. A message posted on the senator’s website reads as follows: “This law provides that applicants can request up to $10,000; however, because of high demand, the SBA has decided to scale the advance and will provide $1,000 per employee for up to ten employees. For example, an applicant with two employees would get $2,000, an applicant with ten employees would get $10,000, and an applicant with more than ten employees would still get $10,000.”

The SBA’s Massachusetts District Office confirmed in a bulletin this week that the SBA has implemented a $1,000 cap per employee on the advance, up to a maximum of $10,000. That bulletin has since been taken down, according to CNBC.

A second federal loan program, the $349 billion Paycheck Protection Program, began accepting applications a week ago and expanded today to include independent contractors and the self-employed. The SBA said more than 550,000 loans worth $141 billion had been approved as of Thursday, according to The Wall Street Journal, which noted that “Banks said only small portions of approved loans have been disbursed to businesses.” Legislation has been introduced to increase funding for the program, but an agreement has not yet been reached.
RBT will provide additional updates regarding these vital loan programs as information becomes available. If you have any questions, please contact us.

You can download the PDF for this page below.

https://www.rbtcpas.com/wp-content/uploads/2020/04/Changes-to-the-SBA-EIDL.pdf

Who is eligible to lend?
All existing SBA-certified lenders will be given delegated authority to speedily process PPP loans.

All federally insured depository institutions, federally insured credit unions, and Farm Credit System institutions are eligible to participate in this program.

A broad set of additional lenders can begin making loans as soon as they are approved and enrolled in the program. New lenders will need to submit their application to DelegatedAuthority@sba.gov to apply with the SBA.

Are these loans guaranteed by the SBA?
Yes, the SBA guarantees 100% of the outstanding balance, and that guarantee is backed by the full faith and credit of the United States.

Are there guarantee fees?
The SBA waives all SBA guaranty fees, including the upfront and annual servicing fees.

What underwriting is required?
You will need to verify that a borrower was in operation on February 15, 2020. You will need to verify that a borrower had employees for whom the borrower paid salaries and payroll taxes. You will need to verify the dollar amount of average monthly payroll costs. You will need to follow applicable Bank Secrecy Act requirements.

How will lenders be compensated?
Processing fees will be based on the balance of the financing outstanding at the time of final disbursement:

• Loans $350,000 and under: 5.00%
• Loans greater than $350,000 to $2 million: 3.00%
• Loans greater than $2 million: 1.00%

Lenders may not collect any fees from the applicant.

Who can be an agent?
An agent is an authorized representative and can be:

• An attorney;
• An accountant;
• A consultant;
• Someone who prepares an applicant’s application for financial assistance and is employed and compensated by the applicant;
• Someone who assists a lender with originating, disbursing, servicing, liquidating, or litigating SBA loans;
• A loan broker; or
• Any other individual or entity representing an applicant by conducting business with the SBA.

How will agents be compensated?
Agent fees will be paid out of lender fees. The lender will pay the agent. Agents may not collect any fees from the applicant.

• Loans $350,000 and under: 1.00%
• Loans greater than $350,000 to $2 million: 0.50%
• Loans greater than $2 million: 0.25%

Can these loans be sold in the secondary market?
PPP loans can be sold in the secondary market. The SBA will not collect any fee for any guarantee sold into the secondary market.

Download this informaiton in PDF format with this link

https://www.rbtcpas.com/wp-content/uploads/2020/04/PPP-Lender-Information-Fact-Sheet.pdf

The Paycheck Protection Program (“PPP”) authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. All loan terms will be the same for everyone.

The loan amounts will be forgiven as long as:

• The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and
• Employee and compensation levels are maintained.

Payroll costs are capped at $100,000 on an annualized basis for each employee. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.

Loan payments will be deferred for 6 months.

When can I apply?

• Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
• Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
• Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.

Where can I apply?
You can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating. Visit www.sba.gov for a list of SBA lenders.

Who can apply?
All businesses – including nonprofits, veterans organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors – with 500 or fewer employees can apply. Businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards for those industries (click HERE for additional detail).

For this program, the SBA’s affiliation standards are waived for small businesses (1) in the hotel and food services industries (click HERE for NAICS code 72 to confirm); or (2) that are franchises in the SBA’s Franchise Directory (click HERE to check); or (3) that receive financial assistance from small business investment companies licensed by the SBA. Additional guidance may be released as appropriate.

What do I need to apply?
You will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender that is available to process your application by June 30, 2020. Click HERE for the application.

What other documents will I need to include in my application?
You will need to provide your lender with payroll documentation.

Do I need to first look for other funds before applying to this program?
No. We are waiving the usual SBA requirement that you try to obtain some or all of the loan funds from other sources (i.e., we are waiving the Credit Elsewhere requirement).

How long will this program last?
Although the program is open until June 30, 2020, we encourage you to apply as quickly as you can because there is a funding cap and lenders need time to process your loan.

How many loans can I take out under this program?
Only one.

What can I use these loans for?
You should use the proceeds from these loans on your:

• Payroll costs, including benefits;
• Interest on mortgage obligations, incurred before February 15, 2020;
• Rent, under lease agreements in force before February 15, 2020; and
• Utilities, for which service began before February 15, 2020.

What counts as payroll costs?
Payroll costs include:

• Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
• Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
• State and local taxes assessed on compensation; and
• For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.

How large can my loan be?
Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount. That amount is subject to a $10 million cap. If you are a seasonal or new business, you will use different applicable time periods for your calculation. Payroll costs will be capped at $100,000 annualized for each employee.

How much of my loan will be forgiven?
You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.

You will also owe money if you do not maintain your staff and payroll.

• Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
• Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
• Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

How can I request loan forgiveness?
You can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.

What is my interest rate?
0.50% fixed rate.

When do I need to start paying interest on my loan?
All payments are deferred for 6 months; however, interest will continue to accrue over this period.

When is my loan due?
In 2 years.

Can I pay my loan earlier than 2 years?
Yes. There are no prepayment penalties or fees.

Do I need to pledge any collateral for these loans?
No. No collateral is required.

Do I need to personally guarantee this loan?
No. There is no personal guarantee requirement. ***However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you.***

What do I need to certify?
As part of your application, you need to certify in good faith that:

• Current economic uncertainty makes the loan necessary to support your ongoing operations.
• The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.
• You have not and will not receive another loan under this program.
• You will provide to the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan.
• Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
• All the information you provided in your application and in all supporting documents and forms is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law.
• You acknowledge that the lender will calculate the eligible loan amount using the tax documents you submitted. You affirm that the tax documents are identical to those you submitted to the IRS. And you also understand, acknowledge, and agree that the lender can share the tax information with the SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.

Click the link below for the PDF of this page.

https://www.rbtcpas.com/wp-content/uploads/2020/04/PPP-Borrower-Information-Fact-Sheet.pdf

The Paycheck Protection Program provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities.

Fully Forgiven
Funds are provided in the form of loans that will be fully forgiven when used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.

Must Keep Employees on the Payroll—or Rehire Quickly
Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.

All Small Businesses Eligible
Small businesses with 500 or fewer employees—including nonprofits, veterans organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors are eligible. Businesses with more than 500 employees are eligible in certain industries.

When to Apply
Starting April 3, 2020, small businesses and sole proprietorships can apply. Starting April 10, 2020, independent contractors and self-employed individuals can apply. We encourage you to apply as quickly as you can because there is a funding cap.

How to Apply
You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating. All loans will have the same terms regardless of lender or borrower. A list of participating lenders, as well as additional information and full terms, can be found at www.sba.gov.

The Paycheck Protection Program is implemented by the Small Business Administration with support from the Department of the Treasury. Lenders should also visit www.sba.gov or www.coronavirus.gov for more information.

Click the link below to download the pdf for this page.

https://www.rbtcpas.com/wp-content/uploads/2020/04/PPP-Overview.pdf