REVIEW OF CARES ACT PPP AND EIDL PROGRAMS PLUS FLORIDA DISASTER LOAN PROGRAM
By: Jack Townsend, Sr. LLM student at Arkansas.
An economic bridge to the other side of this recent slowdown in economic activity is available for Florida industrial hemp growers. Using some or all the COVID-19 stimulus package funding mechanisms creates a runway for business sustainability through this unprecedented economic period. The distressed agribusiness community will see stimulus funds in the 2nd quarter of 2020.
Action Required – Farmers, regardless of the entity used to work under, (i.e., self-employed individual, partnership, or corporate agribusinesses), you must ask and apply for the recent round of stimulus funds created by the COVID-19 pandemic. It may seem like you will be able to weather this medical storm, but one never knows for sure. Perhaps it will be challenging to meet payroll in the upcoming months. Either way the stimulus packages have interesting loan opportunities that can create low-zero interest funding for your business, with significant payment deferrals and possible loan forgiveness (without associated tax burdens).
Depending on the program used for a funding request, ag folks should get ready to talk basic expenses and income language to your bankers/lenders/disaster relief folks. Subject to program requirements and limitations agribusinesses should receive funding to help in this unique time period. This should be a time for a “YES, your request has been approved!” moment.
Coronavirus Aid, Relief and Economic Security (CARES) Act $2.2 trillion stimulus became law on Friday, March 27, 2020.
The CARES Act provides funding to the SBA for its 7(a) loan program. Loans will be available immediately through existing SBA-certified lenders, including banks, credit unions, and other financial institutions. Funding is being created to expand the horizon of availability for funding to businesses that would not normally qualify. The Act has several small business aspects receiving the most attention, below is an overview of these items.
A) Paycheck Protection Program (PPP) Section 1102 of CARES ACT and possible Loan Forgiveness of Paycheck Protection Loans (Forgiveness) Section 1106 of CARES Act.
Through PPP businesses can take out government fully guaranteed non-recourse loans, without personal guarantees or collateral to be used to pay for certain “qualified expenses” as defined in Part F of Section 1102.
Available to any business, non-profit or veteran’s organization that employs 500 or fewer employees will be eligible for the expanded loan program. Also has provisions for borrowing by self-employed individuals.
The amount of the loan cannot be for more than $10M depending on a specific formula calculated from the statutory definitions of “Payroll Costs” multiplied by 2.5.
Calculation of the loan amount for a business in operation before 2-15-2019 and continuing until present is to use the average total monthly payments by the applicant for “payroll costs” incurred during the period beginning 1 year prior to the date the loan is made; if the business was not operating between 2/15/2019 and 6/30/2019 use the average “payroll costs” from the period January 1, 2020 and ending on February 29, 2020.
“Payroll Costs” are the sum of payments of any compensation with respect to employees that is:
salary, wage, commission, or similar compensation; payment of cash; tip or equivalent;
payment for vacation, parental, family, medical, or sick leave;
allowance for dismissal or separation;
payment required for the provisions of group health care benefits, including insurance premiums;
payment of any retirement benefit; or
payment of State or local tax assessed on the compensation of employees; and
the sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as prorated for the covered period; and
shall not include — the compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period; taxes imposed or withheld under chapters 21, 22, or 24 of the Internal Revenue Code of 1986 during the covered period; any compensation of an employee whose principal place of residence is outside of the United States;
“Qualified Expenses” the allowable uses of a loan made under this subsection, use the proceeds of the covered loan for—payroll costs; costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums; employee salaries, commissions, or similar compensations; payments of interest on any mortgage obligation which shall not include any prepayment of or payment of principal on a mortgage obligation; rent (including rent under a lease agreement); utilities; and interest on any other debt obligations that were incurred before the covered period.
Terms- 10-year 4% loan is current terms, but there are deferral and forgiveness programs within the CARES Act.
Payment Deferral- Complete payment deferment of covered loans for at least 6 months and not more than a year.
Forgiveness- flows from proof of use of loan proceeds to pay “Qualified Expenses”-could be as much as 100% forgiveness. Loan forgiveness will be reduced by the reduction in number of employees during the covered period; the reduction in salary or wages of any employee during the covered period is in excess of 25% of the total salary and wages of the employee; can be offset if the employee is rehired before June 30, 2020
Documentation for loan forgiveness – Verification of number of employees on payroll and pay rates; cancelled checks, payment receipts, transcripts of accounts, or other documents verifying payments on covered mortgage obligations, payments on covered lease obligations, and covered utility payments
Apply for Loan Forgiveness – Not later than 60 days after the date on which a lender receives an application for loan forgiveness with documentation the lender shall issue a decision on an application.
If forgiven – there is no tax consequence for loan forgiveness.
Administrator has 30 days to issue regs on deferment of payments and other items, but intent is to make loans quickly and the Administration will work through balance of program regarding payments and deferral and forgiveness of the PPP loans.
At the time of this note there is no PPP landing page at SBA.
B) Expanded Economic Injury Disaster Loan Program (link below)
Section 1110, of the CARES Act expands SBA Section 7(b) through access to Economic Injury Disaster Loans (EIDL) available from January 31, 2020 to December 31, 2020 with the basic requirements set out here.
A business with 500 or fewer employees including sole proprietorships and independent contractors.
Allows the applicant upon application to obtain an advance / grant up to $10,000, which does not have to be repaid, even if the loan request is denied.
If an entity receives the $10,000 advance payment in this program, but later qualifies for a Small Business 7(a) Loan, the advance amount will be reduced from any payroll cost forgiveness amount.
BEWARE-- It is important to note a limitation in the CARES Act that states a borrower who receives assistance under section 7(b)(2) of the Small Business Act related to COVID-19 for purposes of meeting payroll and providing payroll support shall not be eligible for a 7(a) loan for the same purpose. So it seems that there will be no double dipping between PPP and EDIL for same purposes.
The current interest rates listed for EIDL’s: Businesses – 3.75%; Non-Profit Organizations – 2.75%. Terms up to 30 years.
The CARES Act “should encourage lenders to provide payment deferments, when appropriate, and to extend the maturity of covered loans, so as to avoid balloon payments or any requirement for increases in debt payments resulting from deferments provided by lenders” during the COVID-19-declared emergency.
Waives personal guarantees on advances and loans of $200,000 or less for all applicants;
Waives the requirement the business operated for at least one year prior to January 31, 2020;
Waives the requirement that an applicant be unable to find credit elsewhere.
Loans can be made based solely on credit scores.
Loans are available to non-profit organizations as well.
Maximum borrowing – $2 million.
Apply online, not through a bank. For additional information, please contact the SBA disaster assistance customer service center. Call 1-800-659-2955 or visit the website at sba.gov/disaster.
2. Florida Disaster Loan Program
In addition to Federal Loan Programs available, Florida Governor Ron DeSantis has announced a $50 million Florida Small Business Emergency Bridge Loan Program to provide short-term, interest-free loans to small business owners located in all Florida counties that experience economic damage as a result of COVID-19.
Direct loan from Florida Department of Economic Opportunity (no banks involved).
Amount: Up to $50,000 per eligible small business. Loans of up to $100,000 may be made in special cases as warranted by the need of the eligible small business.
Term: one year.
Applications will be accepted by qualified for-profit, privately held small businesses that maintain a place of business in the state of Florida. All qualified applicants must have been established prior to March 9, 2020 and suffered economic injury as a result of the designated disaster.
Qualified small business applicants must be an employer business with 2 to 100 employees.
Interest Rate: Loans will be interest-free for the loan term (one year). The Interest rate will be 12% per annum on the unpaid balance thereafter, until the loan balance is repaid in full. Loan default is subject to a normal commercial collection process.
Application Period: Applications will be accepted under this program through May 8, 2020, contingent on the availability of funds.
The above was a brief compilation on 2 key legislative or policy provisions’ affecting America’s business landscape which includes the small businesses in the hemp farming space. This compilation is neither a full and exhaustive review nor an explanation of these programs and is not intended to be guidance for applying to the programs, rather it is given to spur thoughts and discussions on possible actions for business funding. Contact an attorney, accountant, banker, lender, or Small Business Administration (SBA) directly for specific details and questions about these programs and the specific applicability to you and your business.