We know that these times can be uncertain for you and your business; that's why American Bank is here to help!
What you need to know about the CARES Act
Late on Friday, March 27, the US Federal Government passed the Coronavirus Aid, Relief and Economic Security (CARES) Act - a relief bill to help business owners during the COVID-19 pandemic. Some of the provisions in this act include:
- Paycheck Protection Program - capital to cover the cost of retaining employees
Beginning April 3, small businesses and sole proprietorships can apply. Indpedendent contractors and self-employed individuals can apply starting April 10. We encourage you to apply as quickly as possible because there is a funding cap.
Apply for a Paycheck Protection Program loan
- Emergency Economic Injury Grant - a quick infusion of a smaller amount of cash to cover you right now
- Small Business Debt Relief Program - keep up with payments on your current or potential SBA loan
Below you will find more FAQs about each of these items. If you wish to read more about any these programs or additional resource partners through the federal government, please find The Small Business Owner's Guide to the CARES Act from the US Senate Committee on Small Business & Entrepreneurship in its entirety by clicking the link.
Please note that the Small Business Administration (SBA) is still working on gudiance for these programs and we will update right here on this page as they become available.
If you have any questions, please feel free to contact one of our friendly and knowledgeable lenders through our online contact form (each commerical lender has an Email Me button under his or her name or you can find a contact form at the bottom of Our Lenders page as well.)
Paycheck Protection Program
One of the provisions outlined in the CARES Act is the Paycheck Protection Program. If you are looking for capital to cover the cost or retaining employees, the Paycheck Protection Program may be what you're looking for. Below you will find some questions and answers - FAQ style - on everything you need to know about Paycheck Protection Program.
What is the Paycheck Protection Program?
This is part of the Coronavirus Aid, Relief and Economic Security (CARES) Act that is intended to provide nearly $350-billion in cash-flow assistance to small businesses in America for up to eight weeks. This program is being funded 100 percent by federally guaranteed loans. You can read the entire bill by following this link: https://www.govinfo.gov/content/pkg/BILLS-116hr6379ih/html/BILLS-116hr6379ih.htm
When can I apply for the Paycheck Protection Program?
NOW and we encourage you to apply as quickly as possible because there are limited funding caps and the funds are expected to run out soon.
How do I apply for the Paycheck Protection Program?
You can apply through American Bank by working with one of our SBA lenders. However, the quickest start will be to begin an applicaiton, prior to meeting with your lender, which can be found here: Paycheck Protection Program Application.
Can my local church or other non-profit organization get a PPP loan?
PPP loans are available to a tax-exempt nonprofit organization covered under 501(c)3 of the Internal Revenue Code, a tax-exempt veterans organization described in 501(c)(19) of the Internal Revenue Code, or a tribal business concern described in section 31(b)(2)(C) of the Small Business Act. Churches are eligible.
What are some highlights of the Paycheck Protection Program?
Some highlights of this loan include:
- no cost to apply
- meant to help businesses with these areas:
- retain workers
- maintain payroll
- cover rent/mortgage/utility expenses
- covers expenses February 15 to June 30, 2020
- ability to be forgiven and essentially turned into a non-taxable grant
Do I qualify for Paycheck Protection Program?
The answer is likely yes! The Paycheck Protection Program covers more area than SBA disaster loans. Small businesses, sole proprietorships, self-employed individuals and independent contractors can all qualify.
These businesses / individuals will need to provide the following information:
- Sole proprietorships - tax returns showing income and expenses from the sole proprietorship
- Self-employed individuals - payroll tax filings reported to IRS
- Independent contractors - Form 1099-MISC
- Non-profit 501(c)(3)
- Employers who have 500 or fewer employees
How is this loan different than Small Business Administration's Disaster Loan program?
- no personal or business collateral required - SBA may require collateral for disaster loans over $25,000
- can be forgiven if you follow the terms - SBA disaster loan requires repayment
- more restrictive set of funding purposes - SBA disaster loan can cover most operating expenses
- additional credit access elsewhere is ok - generally, to receive a SBA disaster loan, you need to have no other source of credit
How is this similar to the SBA disaster loan?
- demonstrate your business was economically affected by COVID-19
- loan is long-term (maximum 10 years) and low-interest rate (maximum 4%)
- extended deferment period (6-12 months, depending on your lender) before repayment begins
- no prepayment penalty
- free to apply
What can the funds be used for?
To be considered for forgiveness with the Paycheck Protection Program, you must acknowledge the funds will be used to retain workers and maintain payroll or make mortgage, lease and utility payments.
Specifically, funds can be used for:
- payroll costs
- group healthcare benefits / insurance premiums
- interest on any other debt obligations incurred prior to the covered period
- mortgage, rent and/or lease payments
What is considered 'payroll costs'?
"Payroll costs" include more than simple base salary. Payroll costs include salary, payment of cash tips, vacation, parental, family medical or sick leave, payments for the provisions of group health care, benefits including insurance premiums, retirement payments, and the payment of state and local tax assessed on the compensation of employees. For an independent contractor or sole proprietor who is applying for a loan, payroll cost includes wages, commissions, income, or net earnings from self-employment of similar compensation.
What is expressly excluded from the definition of payroll-cost?
The following forms of compensation are expressly excluded from the definition of payroll costs:
- individual employee compensation in excess of $100,000 annually
- any compensation of an employee who principal place of residence is outside the United States
- amounts paid to independent contractors, as independent contractors can apply for their own PPP loan
- Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020 including the employer's share of FICA and income taxes required to be withheld from employees; and
- certain qualified sick and family leave wages for which a credit is allowed under the Families First Coronavirus Response Act
How much funding can I receive?
The maximum amount you will be offered is 2.5 times the monthly average cost of your business's payroll, mortgage/rent/lease and utility expenses, but no more than $10 million. The way these figures will be determined are as follows:
- regular business - you provide SBA with documentation on your payroll, mortgage/rent and utilities for the previous 12-month period; they will then calculate the monthly average cost of these expenses
- seasonal employer - SBA will use a 12-week period beginning either February 15, 2019 or March 1, 2019 and end June 30, 2019 to determine monthly average costs
- new businesses - if your business did not exist before June 30, 2019, the SBA will look at your costs in January and February, 2020 to determine a monthly average
Important note: If you receive assistance under the Paycheck Protection Program, you may no longer be eligible for an EIDL SBA loan for the same purposes of covering payroll.
How can I get my loan forgiven?
Following your loan signing date, all expenses related to the following can be forgiven for eight weeks:
- payroll - including salary; wage; vacation, parental, family, medical or sick leave; health benefits
- utilities - for any service that began prior to February 15, 2020
- rent - for any lease agreements in effect before February 15, 2020
- mortgage interest - for any mortgages signed before February 15, 2020
To be considered for forgiveness, what documentation needs to be provided?
Without exception, the following documents verifying the different areas need to be submitted to be considered for loan forgiveness:
- number of full-time equivalent employees on your payroll and pay rates, including:
- payroll tax filings reported to the IRS
- state income, payroll and unemployment insurance filings
- mortgage, lease or utility payments
- canceled checks
- payment receipts
- account statements
- certification from a representative of the eligible recipient authorized to make such certifications that:
- documents presented are true and correct
- amount for which forgiveness is requested was used to retain employees, make interest payments on a covered mortgage, lease and/or utility obligation
- any other documentation the administrator determines necessary
The lender must make a decision within 60 days of your forgiveness application submission.
What are the conditions for loan forgiveness?
The purpose of this program is, as the name suggests, to protect paychecks. To be considered for loan forgiveness, you must commit to maintaining an average monthly number of full-time equivalent employees equal to or above that which you had during the previous one-year period.
If you do either of these things, the loan amount that will be forgiven will go down:
- reduce wages by 25 percent or more
- reduce the number of employees retained (forgiveness amount will be decreased proportionately)
You will not be penalized for having a reduction in employees or wages if you rehire employees that were previously laid off at the beginning of the period, or restore any decreased wages that were made at the beginning of the period, if you correct them by June 30, 2020.
Five things your business can do RIGHT NOW for assistance with issues related to COVID-19
- Talk to your lender if you haven't already; particularly important if you are experiencing or expect to experience cash flow problems.
- Plan for the next three to six months, if you haven't already. Many businesses throughout the state had sufficient funds or access to capital for the first two to three months. However, we don't know how long any of this will last, so looking ahead is proper planning at this point. You should be looking both in terms of a potential lengthening of the pandemic, but also in terms of how you will handle a recovery, and re-opening of a business if you are currently closed.
- Be ready to produce required documentation quickly. All loan programs still require some information in order to underwrite the loan, including the ones created under the CARES Act. Having this documentation ready and waiting will help your lender expedite your application process.
One example is in the Paycheck Protection Program (which you can read more about below). This loan is intended to help cover 2 1/2 months' worth of payroll and loan proceeds used for 'covered expenses' and will be forgiven upon verification. It is a good idea to gather documentation verifying the number of employees on payroll for the last 12 months and pay rates, including IRS payroll tax filings and state income, payroll and unemployment insurance filings; documentation verifying payments on covered mortgage obligations, lease obligations and utilities, now so you can get that information submitted easily when you need to.
- Don't panic and draw on lines and credit unnecessarily. There is plenty of liquidity in the system (unlike there was in 2008) and means there is no need to panic. Just like we are encouraging consumers to keep excess cash in insured financial institutions (like American Bank), keep your lines of credit intact until you absolutely need to access them. There may be costs associated with accessing those and if you don't need to incur the added expenses, don't.
- Have patience. We know at this point this is easier said than done. We want to help you through these difficult, unprecedented times but not all programs are in place yet, and even when they are, technology can cause hiccups or delays (i.e., systems crashing).
The team of friendly and knowledgeable commercial lenders at American Bank stand ready to help you navigate through these murky waters. Visit our lenders page to learn how you can reach one of them for assistance today.
Emergency Economic Injury Grant
Another provision of the CARES Act is the Economic Injury Disaster Loans & Emergency Economic Injury Grants - an emergency advance of up to $10,000 to small businesses and private non-profits harmed by COVID-19. To learn more about this portion of the bill, please see the FAQs below regarding the Emergency Economic Injury Grants.
What is the Economic Injury Disaster Loans (EIDL) & Emergency Economic Injury Grants program?
These grants provide an emergency advance of up to $10,000 to small businesses and private non-profits harmed by COVID-19 within three days of applying for an SBA Economic Injury Disaster Loan (EIDL). You must first apply for an EIDL, then you can request the advance. The advance does not need to be repaid under any circumstance.
What can an EIDL be used for?
These lower interest loans of up to $2 million are available to pay for expenses that could have been met had the disaster not occurred, including:
- paid sick leave
- increased production costs due to supply chain disruptions
- business obligations - rent and mortgage payments, operating expenses or debts
Are businesses and private non-profits in Wisconsin eligible for an EIDL related to COVID-19?
Yes, those businesses enduring substantial economic injury in all 50 states, Washington DC and the territories may apply for an EIDL.
Who is eligible for an EIDL?
These types of businesses with fewer than 500 employees are eligible:
- sole proprietorships, with or without employees
- independent contractors
- cooperatives and employee owned businesses
- tribal small businesses
Additionally, small business concerns and small agricultural cooperatives that meet the applicable size standard for SBA are also eligible, as well as most private non-profits of any size (see the following question for more information on size standards).
My private non-profit is not a 501(c)(3) - is it still eligible for an EIDL and a grant?
If you can provide one of the following, you are eligible for an EIDL:
- effective ruling letter from the IRS, granting tax exemption under sections 501(c), (d), or (e) or the Internal Revenue Code of 1954
- satisfactory evidence from the State that the non-revenue producing organization or entity is a non-profit one organized or doing business under State law.
However, if the organization is primarily involved in these types of activities, it is not eligible to receive an EIDL:
- indoctrinating religion or religious beliefs (whether in a religious or secular setting)
- political or lobbying activities
If you are uncertain whether you qualify, please consult with legal counsel to determine whether your organization meets program criteria.
Who is eligible for an Emergency Economic Injury Grant?
Those eligible for an EIDL and who have been in operation since January 31, 2020 (when the public health crisis was announced) are eligible for the grant.
How long are Emergency Economic Injury Grants available?
Grants are available January 31, 2020 through December 31, 2020. The grants are backdated to January 31, 2020 to allow those who have already applied for EIDLs to be eligible to receive a grant.
If I apply for and receive an EIDL and/or an Emergency Injury Grant, can I get a Paycheck Protection Program (PPP) loan?
Whether you've already received an EIDL unrelated to COVID-19 or you receive a COVID-19 related EIDL and/or Emergency Grant between January 31, 2020 and June 30, 2020, you may also apply for a PPP loan. If you ultimately receive a PPP loan to refinance an EIDL into a PPP loan, any advance amount received under the Emergency Economic Injury Grant Program would be subtracted from the amount forgiven in the PPP loan.
However, you cannot use your EIDL for the same purposes as your PPP loan. For example, if you use your EIDL to cover payroll for certain workers in April, you cannot use a PPP loan for payroll for those same workers in April, although you could use it for payroll in March or for different workers in April.
How do I apply for an Economic Injury Disaster Loan?
You can use one of the following resources to apply for an EIDL:
Small Business Debt Relief Program
This relief is currently available to small businesses with non-disaster SBA loans - particularly 7(a), 504 and microloans. However, when the CARES Act is signed into law, this relief will also be available to new borrowers who take out loans within six months of the bill becoming law. Read the FAQs below to learn more about this program designed to help with loan payments on current and potential SBA loans, including principal, interest and fees for six months.
Which SBA loans are eligible for debt relief under this program?
These loans are eligible for debt relief:
- 7(a) loans not made under the Paycheck Protection Program (PPP)
- 504 loans
Disaster loans are not eligible.
How does debt relief under this program work with a PPP loan?
Borrowers may separately apply for and take out a PPP loan, but debt relief under this program will not apply to a PPP loan.
How do I know if I'm eligible for a 7(a), 504 or microloan?
Generally, these criteria need to be met in order to qualify for one of these programs:
- size standards
- be based in the US
- be able to repay
- have a sound business purpose
To check whether your business is considered small, you will need your business' six-digit North American Industry Classification System (NAICS) code and 3-year average of annual revenue.
Each program has different requirements, see SBA's Funding Program options for more details.
What is a 7(a) loan and how do I apply?
7(a) loans are an affordable loan product of up to $5 million for borrowers who lack credit elsewhere and need access to versatile financing, providing short-term or long-term working capital and to purchase an existing business, refinance current business debt, or purchase furniture, fixtures and supplies.
There are many different types of 7(a) loans - find the one that's best for you.
What is a 504 loan and how do I apply?
The 504 Loan Program provides loans of up to $5.5 million to approved small businesses with long-term, fixed-rate financing used to acquired fixed assets for expansion or modernization. It is a good option if you need to purchase real estate, buildings and machinery. Follow this link to learn more about 504 loans.
What is a microloan and how do I apply?
SBA's Microloan program provides loans up to $50,000 to help small businesses and certain not-for-profit childcare centers to start up and expand. The average microloan is about $13,000. Click the link to learn more about SBA's Microloan Program.
Please note that these are cliff notes of a bill that is nearly 900 pages long. If there are changes or updates, we will make every effort to update this information. Additionally, the entire bill can be found at https://www.govinfo.gov/content/pkg/BILLS-116hr6379ih/html/BILLS-116hr6379ih.htm, if you are interested in reading it.