I have been working daily to make sense of all the madness of the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was passed on March 27th, 2020 when President Trump signed into law the stimulus bill that includes a loan program to keep small businesses afloat during mandated COVID-19-related closures - as it pertains to Texas Custom Wine Works and other Texas wineries, vineyards and small businesses.
There is so much conflicting information it was very difficult to figure out what is going on. Forgivable, not forgivable; $2 million limit, $10 million limit. So, the differing information is due to that fact that there are two different SBA loans associated with COVID-19, but one is forgivable and covered by the CARES Act, the other is not. Below is the important information and details I have been able to compile into what is hopefully an easy to follow and understand breakdown. (Hint, the PPP loan is a simple application that requires no personal guarantee or collateral and is 100% forgiven when used for Payroll and utilities, download application here!)
The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocated $350 billion to help small businesses keep workers employed amid the pandemic and economic downturn. Known as the Paycheck Protection Program (PPP), the initiative provides 100% federally guaranteed loans to small businesses. Importantly, these loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward The administration has released initial guidelines, available at www.treasury.gov. The U.S. Chamber of Commerce has issued this guide to help small businesses and self-employed individuals check eligibility and prepare to file for a loan.
EIDL - Economic Injury Disaster Loan
The EIDL is a loan through the SBA for the current COVID-19 situation, but does not appear to be a part of the CARES Act. This loan offers a $10,000 grant (no repayment) available just for applying, paid out within 3 days - whether the loan is approved or denied. The $10,000 would be deducted from the loan amount if approved and the rest of the loan is not forgivable with this plan. Loan is payable with terms up to 30 years at 3.75% interest.
There has been some confusion regarding the eligibility of wineries and vineyards for the loans guaranteed by the CARES Act. Unfortunately, at this time it appears that wineries with vineyard operations do not qualify for Economic Injury Disaster Loans (EIDL) that the SBA is offering, as agriculture-based operations are not eligible. There is also a large amount of information and tax returns, collateral etc that are required to qualify for this loan.
PPP - Paycheck Protection Program
The forgivable loan we want right now is the PPP. Wineries and vineyards ARE eligible for the PPP loans as outlined in the CARES Act which is forgivable when used for payroll, utilities and accounts payables. It is provided with no collateral and no personal guarantee. All small businesses are eligible for the PPP loans as long as they meet the criteria of a small business (500 employees or less) and use the loans for payroll and the other specified items outlined in the bill. Anything not used for these purposes would have to be repaid with terms up to 2 years at .5% interest with the first payment not starting until 6 months after the loan origination date. Proof of use of the funds for these items will have to be provided to the lender for forgiveness.
The PPP loan applications open on April 3 through existing Small Business Administration lenders. Applicants can also apply though any federally insured depository institution, federally insured credit union and Farm Credit System institution that is participating. There will be more lenders approved in the coming weeks. The loans are retroactive to February 15, 2020 and will be available until June 30, 2020.
Eligible borrowers would be required to make good faith certification that they have been affected by COVID-19 and will use funds to retain workers and maintain payroll and other debt obligations. The loans will be forgiven if they 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. Reducing payroll in the 8 week period also reduces the forgivable amount of the loan.
Small businesses and sole proprietors can begin applying on April 3. Independent contractors and self-employed individuals can apply beginning on April 10. While the program is open until June 30, 2020, the government is advising borrowers to apply as soon as possible given the loan cap on the program.
It is also possible for qualifying businesses to do both loans and even refinance the EIDL loan into the PPP loan.
Am I qualified for a PPP loan?
If your business has under 500 employees, was operational on February 15, 2020, had employees for whom it paid salaries and payroll taxes, and has been impacted by COVID-19, then you are likely eligible for a loan. You must make a good faith certification that you have been impacted by COVID-19 and will use the funds to retain workers and maintain payroll and other debt obligations.
How much of a PPP loan can I receive?
Loans are designed to cover two-and-a-half months of payroll, using a calculation of the average monthly payments during the last year period before the loan is issued. For example, if your annual payroll payment was $1.2 million, you can request a loan of up to $250,000 ($1,200,000/12 = $100,000, $100,000 X 2.5 = $250,000). No loans may be larger than $10 million.
What can the PPP loans pay for?
These loans can cover the most immediate business expenses related to the COVID-19 outbreak. These include wages paid to employees, payment of cash tips, paid time off (sick leave, parental, etc.), severance pay, health insurance premiums, retirement benefits, and payroll taxes. The loans can be retroactive for expenses dating back to February 15, 2020.
Who is the PPP Loan lender?
A Bank that does is already an SBA lender or 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.
What are the term of the PPP loan?
When is the first PPP loan payment due?
At least six months after the loan origination date (interest is accrued during the deferment)
Certifications as Found on the Application
The authorized representative of the Applicant must certify in good faith to all of the below by initialing next to each one:
- The Applicant was in operation on February 15, 2020 and had employees for whom it paid salaries and payroll taxes or paid independent contractors, as reported on Form(s) 1099-MISC.
- Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.
- The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments, as specified under the Paycheck Protection Program Rule; I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable, such as for charges of fraud.
- The Applicant will provide to the Lender documentation verifying the number of full-time equivalent employees on the Applicant’s payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight-week period following this loan.
- I understand that loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities, and not more than 25% of the forgiven amount may be for non-payroll costs.
- During the period beginning on February 15, 2020 and ending on December 31, 2020, the Applicant has not and will not receive another loan under the Paycheck Protection Program.
- I further certify that the information provided in this application and the information provided in all supporting documents and forms is true and accurate in all material respects. I understand that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.
- I acknowledge that the lender will confirm the eligible loan amount using required documents submitted. I understand, acknowledge and agree that the Lender can share any tax information that I have provided with 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.
More Funding Options
In addition to the EIDL, PPP and traditional SBA funding programs, the CARES Act established some additional new temporary programs to address the COVID-19 outbreak.
SBA Express Bridge Loans
Express Bridge Loan Pilot Program applies to the SBA Economic Injury Disaster loan which is not available to wineries and vineyards.
Additional Debt Relief
For current SBA Serviced Disaster (Home and Business) Loans: If your disaster loan was in “regular servicing” status on March 1, 2020, the SBA is providing automatic deferments through December 31, 2020.