Friday, July 10, 2020

Window of Opportunity on SBA’s EIDL, PPP and Mortgage Protection



COVID-19 Update: Changes to Economic Injury Disaster Loan (EIDL) 

The Small Business Administration (SBA) announced that on June 15th, 2020 it will once again begin accepting applications for the EIDL loan and grant program from all types of businesses that meet the criteria of the program. The applications for these loans are submitted directly to the SBA through its portal. EIDL is a two-phase program of financial assistance through the SBA. Prior to this change, EIDL applications had been limited to agriculture-related businesses. 

Once the application is submitted through the SBA portal, the SBA processes an advance of up to $10,000. This advance is a grant and does not have to be repaid unless the business also gets a Payroll Protection Program (PPP) loan. In that case, it is added to the PPP loan and repaid through that program.  

To qualify for the EIDL, the business must certify that it has suffered substantial economic injury as a result of the declared disaster. The loan amount may be up to $2,000,000.

Proceeds of this loan may be used for:

  1. Payroll costs during the business disruption or substantial slowdowns 
  2. Providing sick leave to employees unable to work due to COVID-19
  3. Mortgage Payments 
  4. Rent 
  5. Meeting increased material costs due to interrupted supply chains  
  6. Repaying other obligations that cannot be met due to revenue losses 

EIDL loans have a one-year payment deferral during which time interest accrues. There is then an up to 30-year repayment period with interest at 3.75%. These loans require collateral to be put up if they are over $25,000 and personal guarantees if they are over $200,000. 

What does Substantial Economic Injury mean? 

There are a few areas that a business needs to be concerned about if they are considering an EIDL grant/loan. The first is that the business must have suffered a substantial economic injury. This term has a specific legal meaning. According to the SBA website, “The Applicant must establish that the claimed economic injury is substantial and is a direct result of the declared disaster. Substantial economic injury generally means a decrease in income from operations or working capital with the result that the business is unable to meet its obligations and pay ordinary and necessary operating expenses in the normal course of business.” Loss of anticipated profits or a drop in sales is not considered substantial economic injury for the purposes of an EIDL. (13 CFR 123.300 (a) (2)). 

COVID-19 Update: PPP – as of June 19, 2020 

THE LAST DAY FOR A LENDER TO OBTAIN A PPP LOAN NUMBER IS JUNE 30, 2020. If You Are Considering Applying and Have Not, Do It Now. 

As has been the case with this program since its inception, the rules change very quickly and may or may not be retroactive to your particular situation. The Paycheck Protection Program (PPP) was created as part of the CARES act signed into law on March 27, 2020. It provided various types of relief from the impacts of the COVID-19 Pandemic to businesses. Additional funding was added to the PPP on April 24, 2020. On June 5, 2020, the president signed into law the Paycheck Protection Program Flexibility Act of 2020 (PPPFA). This legislation incorporated changes to the original Paycheck Protection Program that had been requested by borrowers, lenders and business groups. There were eight major changes incorporated in the PPPFA, some of which were modified by subsequent Treasury Department guidance issued last week.  

The Eight Major Changes Were: 

  1. Borrowers that received a loan before June 5, 2020, can choose either an eight week or twenty-four-week period to spend the money received on the PPP loan. Previously, the expenditures had to be made in an eight-week period before June 30, 2020. 
  2. Borrowers that received loans AFTER June 5, 2020, will have the shorter of twenty- four weeks, or the time from the date of the loan until December 31, 2020, to spend the money. 
  3. loan was forgiven. That “cliff” has been eliminated based upon a revision to the Interim Final Rule regarding the PPP published in the Federal Register on June 16, 2020.
  4. The penalty applied to the forgiveness calculation for a reduction in workforce has now been extended to allow for rehiring of a sufficient number of employees by December 31, 2020.  
  5. There have been exceptions created to the reduction in workforce penalty for businesses that attempted to rehire employees but could not and where federal guidelines prevented the business from being able to rehire a full staff. 
  6. The repayment period for PPP loan amounts that are not forgiven has been extended to 5 years, but only for those loans that were received after June 5, 2020. Banks have the option, but not the requirement, to extend the 2-year repayment period that existed under the original PPP to the 5-year period provided under the new law.  
  7. All employers can defer payment of the employer’s share of payroll taxes for 2 years.  
  8. The definition of what expenses are still deductible is still in question but are addressed in the revised Interim Final Rule dated June 16, 2020. 

The Treasury Department also issued new forgiveness applications last week. On June 17, 2020, new forgiveness applications were published. The original forgiveness application was revised to implement the PPPFA changes. Treasury also issued a new EZ version of the forgiveness application for borrowers that:  

  • Are self-employed and have no employees. 
  • Or did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number of hours of their employees. 
  • Or experienced reductions in business activity as a result of health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25%. 

Overall, the PPP is a very positive program for small businesses. The most important thing to remember in either applying for the loan or seeking forgiveness is to get the advice of an accountant and attorney who are familiar with the program. Another point is that if you do get a PPP loan, deposit the funds into a new and separate account that is solely for the purpose of holding and expending the PPP money. It will make the application for forgiveness much simpler.  

COVID-19 Update: Foreclosures and Evictions 

There are a number of different and sometimes conflicting measures that have been enacted by the U.S. Treasury Department, Federal Housing Finance Agency, FHA, FNMA, Freddie Mac, GNMA, Florida Supreme Court, Florida Governor and the Chief Judge of the Twentieth Judicial Circuit, among others to respond to the COVID-19 Pandemic. This communication will give a short description of the overall status of the various programs as of June 19, 2020.  

Federal Mortgage Protections 

  • Federally backed mortgages (FHA, FNMA, USDA, GNMA, etc.) are covered by these protections.  
  • You can determine your mortgage at this website: www.consumerfinance.gov/ask-cfpb/how-can-i-tell-who-owns-my-mortgage-en-214. 
  • As of June 17, 2020, FHA, FNMA and Freddie Mac mortgages now under a moratorium on foreclosures and evictions for singlefamily dwellings until August 31, 2020.  
  • Approximately 80% of all home mortgages are federally backed. 
  •  Lenders with federally backed mortgages are required to give up to 1 year of forbearance from making payments. The borrower must request this from the lender/servicer. 
  •  The payments during the forbearance continue to accrue, but the lenders are supposed to work with the borrower on the repayment of those amounts.  
  •  Most private mortgage companies are also offering some form of relief, but it depends on each different servicer and mortgage holder. The borrower must request the relief. 
  • Florida Governor’s Executive Orders 
  • Governor issued Executive Order 20-94 on April 2, 2020, which suspended and tolled all actions under foreclosure statutes. It also suspended and tolled all residential evictions for non-payment of rent. It was effective for forty-five days from then. It has been extended twice, the last time by Executive Order 20-137 on June 1, 2020, and is now effective until July 1, 2020.  
  • These orders do not relieve the renter or borrower from the obligation to make the payments.  

Florida Supreme Court 

  • The Florida Supreme Court has issued Administrative Orders suspending what are called writs of possession. This writ allows the party foreclosing on a property or evicting someone from a property to get a writ of possession that gives law enforcement the power to physically remove someone and their possessions from a property. The last of these orders (A)SC 20-23, Amendment 4, issued June 16, 2020) expires on June 30, 2020. 

The information provided herein is for informational purposes only and should not be construed as legal advice. The publication of this article does not create an attorney-client relationship between the reader and Patrick Neale & Associates. The reader should not act or refrain from acting based upon the information contained in this article without first contacting an attorney. The hiring of an attorney is a decision that should not be based solely upon advertisements or this article. 

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