What You Need to Know About Emergency Small Business Relief
On March 27, President Trump signed into law the CARES Act, a $2 trillion package in response to the COVID-19. Since the law was just signed, facts, especially technical facts, are still emerging. FMS Solutions in collaboration with the National Grocers Association developed this summary and Q&A. Our goal is to help independents better understand the potential opportunities under the law.
Included in the overall law is a program known as the Paycheck Protection Program (PPP). This portion of the law is in the guise of a small business loan package. However, it is in every sense funding intended to encourage employers to continue to retain employees and maintain a steady rate of payroll spend.
About the Program (PPP)
There is $349 billion appropriated for PPP and from what we understand it will be made available on a first come first serve basis. Therefore the timing of application is of the essence.
The program is available to employers with less than 500 employees and contains significant loan forgiveness. No collateral, no personal guaranty required, from what we understand at this point in time.
Loan amounts up to greater of $10MM or 2.5X average monthly payroll (see an example at the end of this document).
One of the few requirements requires that a company attest to the fact COVID-19 has negatively impacted their business.
The impact on grocery retailers is a lengthy list, but examples may include:
- Overtime is rampant which increases the average cost per labor hour
- Continual store sanitization “deep cleaning” is expensive in terms of labor and cleaning supplies
- Store construction costs for many who have constructed plexiglass protection for their cashiers
- Families First Coronavirus Response Act (FFCRA, HB 6201) is likely to impact retailers as employees utilize the expanded leave and FMLA benefits, causing staffing shortages, and potentially requiring retailers to limit store hours or services.
- Certain store operations, such as food service, have been required to be shut down or curtailed.
Grocery retailers are on the front line of this pandemic as much as anyone in our society and they need availability to these funds to continue to provide food, supplies, and medicine to our country.
If you believe your company is eligible, contact your banker immediately and begin work on the loan package. We also recommend working with a preferred SBA lender. These banks can document and close the loans very quickly on behalf of SBA. A list of preferred SBA lenders can be found at https://www.sba.gov/partners/lenders/microloan-program/list-lenders
Paycheck Protection Program (PPP) Loan Q&A
Businesses, including self-employed and independent contractors, Nonprofits (501 C3), veterans’ organizations (501 C19) and tribal business concerns, with less than 500 employees (per company). There are limited exemptions for companies in certain industries under NAICS code 72. For example, hotels, motels, restaurants or certain franchisees would allow the 500 employee threshold to be determined by location vs company. This does not apply to supermarkets.
Any federally insured depository (bank or credit union)
Up to $10 million but not more than 2.5 times average monthly payroll
The principal balance of the loan will be reduced by an amount equal to all expenses for payroll, utilities, and rent or mortgage interest, during the 8-week period after the loan is granted. Any remaining principal balance will be amortized over a period of up to 10 years. However, the first payment will be deferred for 12 months.
Remaining principal balance after loan forgiveness will be charged interest not to exceed 4% but will vary depending on the length of term (up to 10 years).
The guidelines have not yet been published. Nonetheless, it is clear you will need to establish an average monthly payroll. Otherwise, there is no credit underwriting, so no tax returns, financial statements, credit reports, guarantees, etc. will be required.
It is a requirement to attest that the COVID-19 virus has negatively impacted your business.
It is anticipated that when the program is fully up and running, loans will be funded the same day the application is completed.
A small business with fewer than 500 employees and an average monthly payroll of $150,000 applies for a PPP loan with its bank. After attesting that the COVID-19 virus has impacted its business operations, the business receives a loan of $375,000. Over the next 8 weeks, it is determined that the business has incurred $350,000 in eligible payroll, rent, and utility expenses. The principal balance of the loan is reduced to $25,000 and amortized over 10 years at an interest rate not to exceed 4%. Seem like the first loan payment is due 12 months later. The program prohibits SBA from charging fees to the lender and the borrower.
For more information about this program, feel free to contact us.