As the world continues to feel the resounding impact of the coronavirus (COVID-19) pandemic, it is difficult to keep up with everything that is happening. New legislation and policies are in the works and being announced every day. In order to proactively provide information to our business clients, the Blackman & Sloop team is working around the clock to stay up to date on the topics that impact them. Keep reading for a look at what is currently happening in a number of key areas. We are keeping a close watch on the pending federal stimulus package being considered by the US House of Representatives on Friday and the benefits impacting small businesses and will share information as its becomes law.
Customers, vendors, banks, landlords, and federal, state, and local governments all want small businesses to succeed. There is a tremendous amount of government stimulus and many economic initiatives being introduced to support the US economy.
Many small businesses need guidance on how to navigate this new environment. They are faced with making difficult decisions that can determine their survival. At present, businesses have only 4-6 weeks to obtain financing via a bank or the SBA funding loan programs being developed. As a result, businesses should immediately explore a number of actions with their existing business partners, including:
- Identify Cash Resources and Funding – Use existing cash resources, lines of credit, and owners’ personal lines of credit for swift access to cash.
- Pursue A/R Collections – Approach customers for payments in advance of scheduled due dates to increase cash flows.
- Request Credit Extension – Approach vendors, landlords, and/or creditors to request extended credit and payment deferment without penalties. Many credit card companies are deferring payments without interest and penalties for 60-90 days. Some landlords are waiving late fees and adjusting rents for immediate deferments provided.
- Examine Bank Relationships – Approach existing banks for suspension of payment for 60-90 days to be added at the end of the term or interest for only 60-180 days, which can usually be accomplished without loan modifications and additional fees.
- Review Budgets – Review fixed and variable expenses and reduce overhead and personnel costs where possible.
- Perform Forecasting – Prepare scenario forecasts for the next 60-120 days to help inform how you react and make decisions in the future.
Families First Coronavirus Response Act
This federal legislation goes into effect on April 4, 2020. It requires employers with fewer than 500 employees (thought there are some exceptions), to provide paid sick leave and family medical leave to their employees in specific situations associated with COVID-19. The initial exemption for businesses with less than 50 employees appears to have been removed—we are still working to confirm this. To offset the cost to businesses, employer social security tax will be reduced in the future by the amount of paid leave costs covered by employees. There is great complexity, including legal aspects, involved with employment decisions into the future. We encourage our clients to review their personnel handbooks and personnel policies, including vacation, sick, and other leave policies.
SBA Loan Program
Many small businesses are exploring the SBA disaster loan program introduced last week to provide for 4-6 months of working capital loans based on the recent economic impacts. Information can be found and applications can be made through the SBA Economic Injury Disaster Loans page. The SBA customer service phone number is 1-800-659-2955.
Overall Summary of the SBA Loan Program:
The SBA Loan Program is available to small businesses and private non-profits in all 50 states that can prove an economic injury. It defines a small business as one with fewer than 500 employees. The program provides funding for up to 4-6 months of working capital needs (and this could be extended, depending on future events). Loan amounts are based on working capital needs and can be up to $2 million for covering fixed debt payments, payroll, accounts payable, and more. Interest rates are 3.75% for small businesses and 2.75% for nonprofits that do not have credit available elsewhere (the definition of “available elsewhere” is not as strict as it is on other SBA loans and is currently up for interpretation). Further details include:
- Loans up to $25,000 may be given with no collateral; loans above $25,000 require collateral.
- Term lengths can be up to 30 years, with no prepayment penalties.
- There is an automatic one-year payment deferral, however, interest will accrue during the deferral period.
- The approval process takes 2-4 weeks plus an additional 2-4 weeks for closing, depending on the amount of loan and collateral involved.
- Those applying can use either a 2018 or 2019 tax return to cover the return requirement.
- To qualify, the small business or non-profit must have their accounting up to date with 2020 monthly activity through February and forecasting ability for six months.
SBA Loan Application Process:
The SBA strongly recommends use of its online application process in order to expedite the process. To apply, you must register with a username, password, and security questions. Be sure to record this information for future re-entry and use—the SBA has limited resources to troubleshoot login and/or password issues. Additional tips include:
- The application is through the “business” program, not the “homeowners-renters” program.
- Use the EIDL section for “economic injury with disaster loss.”
- The loan request amount is designated in the “Additional Information Section” along with a brief description of loan needs.
To complete the SBA application, you must submit the following:
- Form 5 – For all businesses, including single-member LLCs. Form 5C is used for sole proprietors.
- IRS Form 4506T – For income tax disclosures for the business and all owners with 20% or more ownership.
- Form 2202 – Liability disclosure of business and a separate form for 20% or more owners.
- Form 413 – Personal financial statements for all 20% or more owners.
- Tax Returns – 2018 or 2019 business returns are required.
- Accounting Information – 2020 year-to-date and projected financial statements are required.
Please note: All of this information is subject to change. We will continue to update and provide further details as they become available. Please do not hesitate to reach out to your Blackman & Sloop accounting advisor with any questions or concerns.