A Strategic & Tactical Recovery Outline For Hospitality Businesses

Things to remember:

  1. This is not legal or accounting advice but should be used as simply guidance by you in determining your best course of action.
  2. You should always check with your attorney or accountant to discuss how any of this impacts your specific situation.
  3. This is a very fluid situation and facts can change daily. I may or may not get to all the changes as they happen so be sure to follow #2 above.
  4. It’s likely that the PPP funds will be refilled if they are exhausted.

    If you’re not sure about applying for a PPP loan due to uncertainty about the terms, it’s better to apply now while you’re gaining clarity. If you get approved, you can simply not use the funds, and immediately repay it in full. There is no prepayment penalty.

    Get familiar with the way your state unemployment office is applying the federal rules for expanded unemployment benefits. Contact your state’s Department of Labor for further guidance. (Missouri’s guidance is here.)

SUMMARY: There are two key SBA small-business relief programs :

1) Paycheck Protection Program (PPP) (up to $10m loan, which is forgivable if you meet certain milestones on maintaining your payroll);

2) Economic Injury Disaster Loan (EIDL) & Grants (you can receive a $10k cash advance within 3 days of applying for up to $2m of an Economic Injury Disaster Loan (EIDL)); according to the government, “the $10k advance does not need to be repaid under any circumstance, and may be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments.”

The PPP loan application is live:

  • The best resource for updates on the PPP program is Senator Marco Rubio’s twitter account (he chairs the Senate Small Business Committee).
  • Released on April 8th; PDF from US Treasury on most FAQ regarding PPP.
  • Go to the SBA PPP page and “find a lender” (if possible, work through your existing lender).
  • Here is the template form that your lender will ask you to fill out
  • The US Chambers Of Commerce has a great guide on calculating your loan.
  • Here is a 31-page official FAQ PDF
  • The subreddit /smallbusiness is a very useful aggregation of experiences on the PPP and EIDL loan process.
  • FRAUD ALERT: All digital communication will come from a “.gov” URL and the SBA will NEVER ask you to “put money down or upfront or a fee” to get a loan.
  • While all lender CAN process as of April 3, not all have infrastructure ready so please speak to your lender to find out more.
  • Independent contractors can apply on April 10th, 2020.

The EIDL application is live now.

You are allowed to do BOTH programs, but there are restrictions (see below).

Two other SBA Loan options that may apply to you:

  • SBA Express Bridge Loans: Enables small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 quickly.
  • Debt Relief For SBA Loans: The SBA is providing a financial reprieve to small businesses during the COVID-19 pandemic.

*Up-to-date as of 5pm EST April 8th

  • For latest directly from SBA: 
  • Small businesses can get up to a $10,000 advance on an Economic Injury Disaster Loan even if your previous application was declined (apply again).
  • Lendio has a great list of other relief programs for small businesses available from States and Corporates.
  • Business must have been in operation on February 15th, 2020 to qualify
  • This service (Main Street) helps startups effortlessly discover, apply for, and receive up to $1,000,000 in government stimulus funds, incentives, and tax credits.

Where are the primary sources?
Here is the 11-page government summary PDF and PPP website and EIDL portal (definitely consult all).

Which SBA office can help me?
Keep in contact with the SBA office nearest to you (here are Twitter accounts for each district office)

What programs are available? (TL;DR)

  1. Capital To Cover Employee Costs → Paycheck Protection Program (Fill out this form for up to $10 million of an SBA loan)
    • SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.
    • Who is eligible?:This program is for any small business with less than 500 employees (including sole proprietorships, independent contractors and self-employed persons), private non-profit organization or 501(c)(19) veterans organizations affected by coronavirus/COVID-19. Businesses in certain industries may have more than 500 employees if they meet the SBA’s size standards for those industries.
    • What lenders are eligible?: You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union,  and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating in the program.
    • Here is a list of the 100 most active SBA 7(a) lenders; contact your local SBA office and lenders for more information
    • Lenders may begin processing loan applications as soon as April 3, 2020 (here is the SBA PPP link to “find a lender”; work through your current bank if possible)
  2. $10k Advance For Loan Application (Up to $2m) → Economic Injury Disaster Loans (EIDL) & Emergency Economic Injury Grants (Advance of $10,000 comes within three days of applying for the SBA Economic Injury Disaster Loan, through this portal up to $2 million)
    • What is EIDL used for? 
      • EIDLs are lower interest loans of up to $2 million, with principal and interest deferment at the Administrator’s discretion, that are available to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses.
    • Who is an eligible?
      • Those eligible are the following with 500 or fewer employees:
        1. Sole proprietorships, with or without employees
        2. Independent contractors
        3. Cooperatives and employee owned businesses
        4. Tribal small businesses
        5. 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 below for more info on size standards. (refer to PDF)
    • What are loan terms:
      • Up to $2m
      • Payback period = 15-30 years
      • Interest rate = 3.75%

Can I Do Both The PPP and EIDL Programs? 

Whether you’ve already received an EIDL unrelated to COVID-19 or you receive a COVID19 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 or 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. However, you cannot use your EIDL for the same purpose as your PPP loan. For example, if you use your EIDL to cover payroll for certain workers in April, you cannot use PPP for payroll for those same workers in April, although you could use it for payroll in March or for different workers in April.


What Should I Have Ready For The PPP Application?

  1. Fill out the PPP form
  2. On April 3rd (here is the SBA PPP link to “find a lender”; work through your current bank if possible)
  3. Have documentation proving revenue / expenses prior to February 15th, 2020
  4. Key documents
    • Gather your company EIN or TIN number
    • 2017 taxes
    • 2018 taxes
  5. 2019 taxes (if not complete yet, 2019 Profit and loss broken down by month will work)
  6. Lenders will request documents to verify
    • Full-time equivalent employees on payroll
    • dollar amounts of payroll costs
    • covered mortgage interest payments
    • covered rent payments
    • covered utilities for the eight week period starting when you get this loan
  7. Stay in contact with your local SBA office

OK, So I Can Go To The Portal For The EIDL…Can You Tell Me More About The PPP?

  1. Capital To Cover Employee Costs → Paycheck Protection Program (FORM)
    • Key Dates:
      • Lenders can process PPP on April 3rd (here is the SBA PPP link to “find a lender”; work through your current bank if possible)
      • Loans available through June 30, 2020
    • Details:
      • 100% federally guaranteed loans to employers who maintain payroll during this emergency
      • PPP has a host of attractive features, such as forgiveness of up to 8 weeks of payroll based on employee retention and salary levels, no SBA fees, and at least six months of deferral with maximum deferrals of up to a year.
    • Who Is Eligible?: 
      • Business must have been in operation on February 15th, 2020 (This program would be retroactive to February 15, 2020, in order to help bring workers who may have already been laid off back onto payrolls)
      • Small business concerns, as well as any business concern, a 501(c)(3) nonprofit organization, a 501(c)(19) veterans organization, or Tribal business concern described in section 31(b)(2)(C) that has fewer than 500 employees or the applicable size standard in number of employees for the North American Industry Classification System (NAICS) industry as provided by SBA, if higher.
      • Individuals who operate a sole proprietorship or as an independent contractor and eligible self-employed individuals.
      • Any business concern that employs not more than 500 employees per physical location of the business concern and that is assigned a NAICS code beginning with 72, for which the affiliation rules are waived.
    • What Is Loan Size?
      • Your max loan is equal to 250% of your average monthly payroll costs (up to $10,000,000)
      • For purposes of calculating “Average Monthly Payroll”, most Applicants will use the average monthly payroll for 2019, excluding costs over $100,000 on an annualized basis for each employee. For seasonal businesses, the Applicant may elect to instead use average monthly payroll for the time period between February 15, 2019 and June 30, 2019, excluding costs over $100,000 on an annualized basis for each employee. For new businesses, average monthly payroll may be calculated using the time period from January 1, 2020 to February 29, 2020, excluding costs over $100,000 on an annualized basis for each employee.
        • SAMPLE CALCULATION
        • Jan 2019 – Dec 2019 Payroll (12 months) = $1.2mn
        • Avg. Monthly Payroll Expense = $1.2mn / 12 = $100k
        • Loan (2.5x Avg. Monthly Payroll) = 2.5 x $100k = $250k
      • If you took out an EIDL between February 15, 2020 – June 30, 2020, and you want to refinance the loan into a PPP loan, you would add the outstanding loan amount to the payroll sum.
    • What is eligible for payroll (and loan proceeds)? 
      • Compensation (salary, wage, commission, or similar compensation, payment of cash tip or equivalent)
      • Payment for vacation, parental, family, medical, or sick leave
      • Allowance for dismissal or separation
      • Payment required for the provisions of group health care benefits, including
      • Insurance premiums
      • Payment of any retirement benefit
      • Payment of State or local tax assessed on the compensation of employees
      • Payroll costs (as noted above)
      • Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
      • Employee salaries, commissions, or similar compensations (see exclusions above)
      • Payments of interest on any mortgage obligation (which shall not include any
      • Prepayment of or payment of principal on a mortgage obligation)
      • Rent (including rent under a lease agreement)
      • Utilities
      • Interest on any other debt obligations that were incurred before the covered period
    • What is NOT eligible for payroll? 
      • Employee/owner compensation over $100,000
      • Taxes imposed or withheld under chapters 21, 22, and 24 of the IRS code
      • Compensation of employees whose principal place of residence is outside of the U.S.
      • Qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act
    • What are the loan terms? 
      • For any amounts not forgiven, the maximum term is 10 years, the maximum interest rate is 4 percent, zero loan fees, zero prepayment fee (SBA will establish application fees caps for lenders that charge)
    • How is loan forgiveness calculated? 
      • You must apply through your lender for forgiveness on your loan. In this application, you must include:
        1. Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and State income, payroll and unemployment insurance filings.
        2. Documentation verifying payments on covered mortgage obligations, lease obligations, and utilities.
        3. Certification from a representative of your business or organization that is authorized to certify that the documentation provided is true and that the amount that is being forgiven was used in accordance with the program’s guidelines for use.
    • Can I get more than one PPP loan?
      • No, an entity is limited to one PPP loan. Each loan will be registered under a Taxpayer Identification Number (TIN) at SBA to prevent multiple loans to the same entity.

Payroll Protection Program (PPP) loans are forgivable loans.

The Fact Sheet is linked below and I would recommend you proceed with that quickly.

Once you complete the application, take it to your local bank

Required items to process your loan request are all linked below.

  1. PPP Loan Application (below).

  2. SBA Loan CARES Act Calculation Worksheet (below)

  3. Plus you’ll need to supply 12 months of payroll history to validate the loan amounts you’re requesting.

UPDATES


On March 31st , the Treasury Department released new information about the Paycheck Protection Program (PPP) and economic injury disaster loans (EIDL).

Here are some of the new points and clarifications that business owners should be aware of, according to Ami Kassar, an expert on small-business loans and founder of lending advisory firm MultiFunding.

1. When you can apply

Small businesses and sole proprietors can apply for the loans beginning April 3. Independent contractors and self-employed individuals can apply April 10.

The Treasury Department had not provided dates until yesterday.

2. 1099 workers

Business owners should not include 1099 payments when calculating their average monthly payroll for the purposes of getting a loan. The thinking here is that 1099 workers can apply for PPP loans on their own, so business owners shouldn’t be counting those payments as payroll.

3. Venture-backed startups

The SBA’s affiliation standards, which can require venture-backed companies to include employees of companies that own equity in their employee count, are waived for businesses (a) in the hotel or food services industries; (b) that are franchises in the SBA’s Franchise Directory; and (c) that receive financial assistance from small-business investment companies licensed by the SBA.

As of now, the affiliation standards do not appear to be waived for VC portfolio companies, which means that many would not be able to participate in the PPP. The National Venture Capital Association (NVCA) has sent a letter to the Treasury Department and SBA urging them to include venture-backed startups in the loan programs. You can read more about the NVCA’s regulatory efforts here.

4. Updated loan terms

The loan rate is being initially set at 0.5 percent, with two-year terms.

The legislation had said loans would be at no more than 4 percent interest, and that terms would be no more than 10 years.

5. American-made commitment

Business owners must certify that, “To the extent possible, I will purchase only American-made equipment and products.”

It’s still unclear how, or if, the Treasury Department will attempt to enforce this, but it’s an interesting “America First” inclusion.

6. Loan forgiveness on non-payroll expenses

It is anticipated that no more than 25 percent of the forgiven PPP amount can be used for non-payroll expenses.

Loans used for payroll, rent, utilities, and mortgage interest can be forgiven, but based on the Treasury Department’s new guidance Kassar anticipates that no more than 25 percent can be used for non-payroll expenses and still be forgiven. Note that this is new and separate from the provision stating that the forgiven amount will decrease if you reduce the pay of any employee making less than $100,000 by 25 percent or more. Read more of Inc.’s guidance on getting your loans forgiven.

7. Loan issuers

Institutions that are insured by the FDIC, credit unions, and farm credit systems can issue the loans.

The institution will need to apply and be approved to issue the loans, but they need not be a previously approved SBA lender. There will be a list of approved banks at FDA.gov, though there was no list up as of Wednesday morning.