By Keith Carlson
The funding programs recently announced by the current administration (as part of the Coronavirus Preparedness and Response Supplemental Appropriations Act) have triggered numerous questions and clarifications from the general public. These programs are vital and are intended to help all businesses that are facing an economic crisis in response to the recent unprecedented events.
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Although the situation is evolving by the day, some details around this relief funding have begun to crystallize, and many within proximity to VonLehman's offices are now eligible to apply. If you aren't currently eligible, there's no need to fear: states and territories are being added in real time, and there are substantial zones that are currently deemed "disaster areas." Given the details are becoming clearer, we want to share what we know and how to begin the process, should you feel the need or desire to obtain the funding.
Brief Program Overview:
The U.S. Small Business Administration ("SBA") is offering designated states and territories low-interest federal disaster loans for working capital to small businesses that are suffering substantial economic injury as a result of the Coronavirus (COVID-19). States supporting their constituents' access to the programs must submit a request via the Governor's office to be declared a disaster area. Once approved, those who reside and operate businesses in those states/territories can apply for the funds and loans.
How it has evolved:
For those in close proximity to VonLehman's regional offices, you will be interested to know that the governors of KY, IN, and OH (among many other states) have applied for approvals. Before applying, you should be sure your county is approved within the designated areas. You can use the easy search tool to see if your county is currently approved. You should use the filter tool carefully.
For example, there are five (5) different area classifications that can be found in KY counties. You may need to go through the various areas that are included in your state to discover which area you would belong to.
Other salient details:
Unlike other SBA funding, those seeking access to the funds will have to apply directly to the US Government. You are free to discuss the program with your banker; just know they don't have the ability to apply for you. If you find the application process challenging or too daunting, consult your accountant, attorney, wealth advisor, or other advisors to help you.
Businesses intending to apply must meet the definition of what qualifies as a small business. Here is a link that will allow you to see if a business meets the requirements. The tool function is helpful, as it allows you to sort by NAICS codes. The size standards are fairly generous in relation to many of the clients we serve.
Applicants cannot use the loan proceeds to refinance debt, or to buy property, plant or equipment. They may use the proceeds for loan payments, tax payments, A/P, and general operating expenses. They are advised to keep receipts for the expenditure of funds for 3 years in case of an Audit.
The maximum loan able to be obtained is $2.0 million; loans below $25,000 do not require collateral; loans above $25,000 will require some collateral details to be supplied, but applications will not be turned down on the basis of a collateral shortfall.
There are no prepayment penalties.
Interest rate is 3.75%; interest rate for non-profits is 2.75%.
Long-term repayments: up to a maximum of 30 years.
Once the application is submitted, assuming the forms are correctly filled out, the SBA is estimating two to three weeks for approval and an additional week for funds to be disbursed.
We are told the biggest delays in the process will be from invalid or incorrect filings so, if you pursue this option, please take the time to do it correctly. For perspective, the forms and links required for submission are provided below;
- SBA Form 5
- IRS 4506-T
- SBA Personal Financial Statement (PFS)
- SBA Schedule of Liabilities
- Business and personal Tax Returns (three years of actual filings; no worries if you haven't completed 2019 yet).
Anecdotal feedback we have received from several of our partner lending institutions:
Businesses seeking less than $500,000 are currently experiencing a simpler process that is more predicated on an applicant's credit score.
Timelines are progressing quicker than anticipated and estimated, but that will most assuredly slow down once the volume of applications begins to swell (as more states are approved).
SBA is sending $25K to applicants upon approval; balance will be remitted in less than 30 days.
Requests greater than $500,000 undergo a more stringent lending process with a full application and submission of standard financial packages; longer evaluation times are certain.
Guidelines at the SBA have been to cap loan requests to 50% of Gross Profit.
Loan will be secured with a UCC filing against business assets; personal assets may be required as collateral as well. Please feel free to contact us with questions.
Don't be discouraged by the complexity of these programs. Our team of specialized M&A experts is here to guide you through the uncertainty of this current landscape.
Contact us today at 800-887-0437 or firstname.lastname@example.org. Most importantly, stay healthy!