There is $349 billion in loans and grants in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which President Donald Trump signed into law on March 27. They are earmarked for small businesses hit hard by the coronavirus crisis that has nearly brought the economy to a standstill.
The funds are divided among three small-business programs that offer forgivable grants and loans, as well as loan deferral. The biggest ones are the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan Program (EIDL).
A recent UMA survey showed 85% of respondents plan to apply for both, which is a smart strategy.
Town Hall highlights
The UMA’s third Town Hall session, held April 2, focused on the difference between these two loan programs. Here are highlights of the hour-long conversation, which also can be found here.
PPP lets businesses borrow up to $10 million in loans that are 100% forgivable if they do not lay off any employees or if they rehire employees they’ve already laid off.
The EIDL includes a $10,000 grant that businesses can get in three days, which they do not need to pay back. The rest of the EIDL loan, which caps out at $2 million, is not forgivable but can be more flexible than PPP in the types of expenses it covers.
While either can be used to cover payroll costs, operators can’t apply to use the money from both to cover payroll.
Applications for EIDL are made through the Small Business Administration, while those for PPP go through a lender.
PPP terms, benefits
The terms of the PPP are a 1% rate of maturity over two years. The first payment is deferred by six months. The loan is 100% guaranteed by the SBA, so borrowers don’t need to provide collateral. There are also no borrower or lender fees. Instead, banks are asking for four years of tax returns. For those who haven’t yet filed a 2019 return, there is the option of providing a financial statement in lieu of a tax statement.
“If you spend the money on payroll costs, interest on mortgages, rent, utilities — which includes the internet, by the way — the loan is forgiven,” said Ken Presley, UMA’s vice president of legislative and regulatory affairs and industry relations/COO. “They want you to spend 75% of the loan on the payroll.
Gladys Gillis, CEO of Seattle-based Starline Luxury Coaches, was one of the first to apply for the PPP funds, which can provide up to 2.5 times the average monthly payroll. She recommends identifying people who were hired for portions of 2019 and annualizing their salary.
“Don’t turn in a request too small,” she advised during the call, noting both the employer and employee shares of health insurance and 401k can be included as well as wages and state unemployment insurance.
Back on the payroll
PPP funds are intended to encourage small businesses to rehire furloughed full- and part-time workers and put them back on the payroll through June 30. Presley recommends not bringing back employees until there is cash in the business account.
Sole proprietors and independent contractors are eligible for PPP. The money can also be used to pay interest on other debts, Presley added.
“The objective here is to get money back into the economy and take care of our people. Someone mentioned, ‘What do we do with our drivers if we don’t have driving work for them to do?’ Be creative. There are lots of other things you could repurpose them to do,” said UMA Interim President and CEO Larry Killingworth.
Some operators have had some hiccups with working with banks, including being turned down because they aren’t customers. Banks are working with only current and previous clients on loans because they have access to financial information.
“If you are still waiting, you may have applied when things are on a different program and need to reapply,” Killingsworth said.
About the EIDL
The EIDL is supposed to provide $10,000 within three days of applying. The timing might differ, depending on states and how fast each is processing applications, Presley said.
The EIDL, which operates more like a loan, allows up to 30 years to pay back. But it does require traditional guarantees, except for loans of less than $200,000. Traditionally, EIDL loans are available only to small businesses that have exhausted all other lending sources, but that rule is being lifted for the coronavirus crisis. The SBA is, however, requiring a review of a company’s tax records.
Rhonda Bilbrey, of Bilbrey Tours in Abilene, Texas, shared that the latest EIDL application is “super streamlined” and took her about 15 minutes to fill out.
Aid extension possible
With stay-at-home orders being extended and major events being moved or canceled in summer months, eight weeks of emergency assistance from the federal government seems unrealistically short. Fortunately, Congress appears to be laying the groundwork for extending aid with a fourth stimulus package that will focus on infrastructure.
UMA, along with the National Limo Association, recently took part in a conference call with U.S. Rep. Ben Ray Lujan, assistant speaker of the House, about the needs of the industry, which is likely going to be one of the last to recover.
“Congress is not going to replace your gross sales but, other than that, keep us posted as to what you need,” Presley said. “It’s gonna be a long recovery to get people traveling again and take them on those motorcoach trips and tours. So, keep us posted on what your specific needs are.”
Forms for both loans can be found at uma.org/covid19. Join UMA for the next online Town Hall meeting Thursday at 2 p.m. ET on the Zoom platform to discuss the most current issues that matter to operators.