Understanding Loan/Grant/Funding/Options in the Stimulus Package

Webinar Summary
IFA leadership discussed the various loan relief programs offered through government agencies, and as a result of the highly anticipated legislation recently passed by Congress. Though implementation of the Paycheck Protection Program loans (PPPL) by the Small Business Administration and via commercial lenders is forthcoming, the panelists outlined the importance of liquidity at this time and to take advantage of the loans offered by these outlets. The panelists took a step-by-step look at the loan terms and documentation needed by franchise businesses to access new loans and their eligibility for forgiveness within these programs.

Below are key bullet points from the webinar –

• Liquidity is key and cash is king: both EIDL and PPPL programs offered by the SBA and commercial lenders can provide franchise small businesses with much-needed liquidity.
• PPPL authorized by recent legislation offers businesses with collateral and personal guarantee-free loans that max at 250% of average monthly payroll expense, to be used for payroll, rent, utilities, and interest expenses
• Equip yourself with proper documentation to apply for these loans when application period opens, including: bank statements, payroll register, tax filings, financial statements, store rosters, and debt schedules
• Overprepare for what is needed, and take the liquidity now to avail yourself of as many choices and options as you can to stabilize your business

Full Bullets –

• How to apply for Paycheck Protection Program
• Available Funding – liquidity is key
  • EIDL – designed for localized disaster relief and recovery; made by SBA directly
    • Max loan of $2 million
    • Term – up to 30 years
    • Interest rate – no higher than 4%
    • Use of funds – working capital
    • Security – personal guarantee
    • No loan forgiveness
    • Funding will happen in months, or quarters, so if cash is needed quickly, CARES Act funding may be a better option
  • PPPL – available to businesses with less than 500 employees; no collateral, person guarantee, and possible loan forgiveness à focused on getting liquidity; uses payroll base to calculate loan terms
    • Qualifications: In business on Feb. 15th, paying employees and payroll taxes
    • Loan maximum is average monthly payroll expense x 250% based on last 12 months prior to February 15th
    • For businesses not operational in 2019, 2.5x total monthly payroll costs incurred for January and Feb. 2020
    • No need for loan must be show, no collateral, no personal guarantee
    • Payroll = salary, tips, vacation, health benefits, retirement, state or local tax assessments
  • Excluded payroll costs
    • Compensation of an individual employee in excess of an annual salary of $100,000
    • Payroll taxes, railroad retirement, and income taxes
    • Any compensation of an employee whose principal places of residence is outside the US
  • PPPL Terms
    • 10 year
    • Max rate of 4%
    • Fees waived
    • Processing time is days/weeks (unknown)
    • Relief for franchise businesses releative to affiliation (SBA Franchise registry)
    • Deferments up to 12 months
    • Credit elsewhere requirement is waived
    • No Collateral requirement
    • Forgiveness for loan is based on final term employment
    • No prepayment penalty
  • Approved use of funds
    • Payroll, rent, utilities, interest
  • If you don’t retain 100% of your employees, it will reduce how much of your loan will be forgiven
• What documents do I need?
  • Typical SBA loan
    • Recent business bank statements
    • Recent personal bank statements for all owners with greater than or equal to 20% ownership
    • Payroll register – 2019 to present – go to your provider for digitized access
    • Last 3 years business tax returns for all entities
    • Last 3 years of personal tax returns for all owners with greater than or equal to 20% ownership
    • Last 3 years of financial statements (Balance Sheet and P/L) for all entities
    • Most recently completed 2020 financial statements
    • Store roster and business debt schedule
  • Overprepare for what is needed
• How does forgiveness work?
  • Forgiveness is available for business owners who use the loan proceeds to maintain their employee headcount and payroll dollars
  • To encourage employers to rehire employees who have already been laid off due to COVID-19 crisis, borrowers that re-hire workers previously laid off will not be penalized
• What if I cannot keep my employees?
  • Your loan will lose the forgiveness provision pro-rata to your reduction in payroll
  • Portion of loans not forgiven are payable over a maximum of 10 years at a max of 4% interest
    • These loans will be unsecured without personal guarantees
    • Not collateralized
    • Your existing lender may or may not have an issue
  • If franchisees have SBA loans and are in forbearance, this will start after the forbearance, so you will have 9 months of debt free loans
• What comes next?
  • Many failed businesses at the end of this
  • Having cash in your account will be your best defense against being one of those failures
  • Little to no risk in applying for and taking a CARES Act loan
  • When the world recovers, there will be a new normal in life and in credit markets
  • Credit will be tight outside of the SBA, which will likely go back to a 2009 era with expanded government guarantees
  • With the election coming, it will be highly uncertain
• Run your business like you never got the loan if you receive that infusion of liquidity
• Deep and wide impacts of the coronavirus; even if the government takes off a date, does the customer come rushing back to your restaurant? If the answer is no, then the answer is liquidity
• There will be a rush for money and employees – those that take this loan will face an employment market where former employees are being scooped up by others to hit the employee number target
• You have to bring them back at no less than 25% in reduced wages
  • How to scale employees while skimming off the top in wages. Hard to do if everyone is fighting for the same employee
• Park this money in a separate and sole account to make it easier on the backend for proof of loan forgiveness

• State and Local Coronavirus Small Business Assistance
  • Forbes continues to collect and update resources that have broad applications
    • Zero/low interest micro loans etc
    • Fundbox – state by state resources list
  • Grants – grantwatch.com – updated list of grants available
  • State Governor resources
    • Each state is updating resources for tax deferrals, deadline extensions, other state-specific resources
    • Nga.org/governors/addresses
  • Business Sector Grants (cweonline.org) – city by city grants
    • Verizon
    • Kiva
    • Facebook
    • Hello Alice
    • JPMorgan Chase

Questions:

• Where to apply for a PPPL?
  • You can’t yet, but through your normal lender
  • SBA lender, if you have an going relationship with your SBA loan handler
  • If no SBA, work with someone who can digitize your information to submit the loan swiftly
• Disaster Loan between Disaster Loan versus PPPL
  • In large part, the PPPL are for employee heavy, asset light. If you’re asset heavy, employee light, then disaster loans are likely better
• Apply for both a line of credit and for a PPPL
  • Assess the collateral assigned to the line of credit
• Pay attention to loan covenants – lenders may want to take the liquidity to fulfill existing debt covenants
• Maximum PPPL is based on payroll dollars ONLY, but forgiveness is based on payroll, rent, utilities and interest
• If I get a PPPL and go out of business, what happens to the loan?
  • It’s unsecured credit, so you’re not on the hook for it, as long as you didn’t commit fraud with the money you received
• The odds of your EIDL loan being looked at before your PPPL is funded are slim, so go for the PPPL first