Federal Relief Program Options Simplified

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Source: Laura Liptai, PhD, Engineering & Applied Sciences Section

This article outlines urgent financial resources to improve practice for smaller forensic science practitioners. As you know, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act on Friday, March 27, to help the economy recover from the Covid-19 pandemic. The provision in the Act that’s getting the most press is the $1,200 per person and $500 per child that will be automatically sent to anyone whose last tax return showed income of less than $75k per year (or $150k for married couples).

There is another provision called the Paycheck Protection Program that actually can be even more beneficial to you if you are a small business owner (which includes sole proprietors and independent contractors). Basically, any business affected by the pandemic can receive a check equal to 2.5x your prior year’s average payroll. The max annual compensation that will be considered is $100k per person, but even with that limit, it’s a generous benefit. For example, a sole proprietor who made $100k last year would receive roughly $20k. It is technically structured as a loan, but it is a loan that you may not have to pay back as long as it’s used for a qualifying expense (which includes paying yourself), and as long as you keep the same number of employees and roughly same level of comp for the next few months.

The main catch to consider is that there is an alternative (and mutually exclusive) provision that might work out better for you if you think your revenue is going to drop by more than 50% from the same period prior year. It’s called the Employee Retention Tax Credit. More information may be found HERE. However, if you think revenue won’t drop by that much, then you might consider applying for the Paycheck Protection Program at: https://covid19relief.sba.gov/#/.

Please discuss any concerns or questions with your financial advisor. Be patient as many of the large banks have not come online with the program yet. I hope this helps support our smaller AAFS forensic science practitioners.

Below is more information on two CARES Act options for relief for small businesses.

Small Business Debt Relief Program

This program will provide immediate relief to small businesses with non-disaster SBA loans. The Small Business Administration (SBA) will cover all loan payments on SBA 7(a), 504, and microloans, including principal, interest, and fees, for six months.

Specifically, the CARES Act requires the SBA to pay the principal, interest, and associated fees for:

  • Covered loans made before March 27, 2020, and on deferment, for 6 months, beginning with the next payment due after the deferment period.
  • Covered loans made on/within 6 months beyond March 27, 2020, for 6 months beginning with the first payment due.
  • The 504 Loan Program Central Servicing Agent will not apply an ACH debit to current borrower’s accounts to cover the loan payments due on April 1, 2020, for all 504 loans in regular servicing status. The SBA will continue to make these loan payments to the CSA for the 6 month period beginning April 1, 2020.

Additionally, while not mentioned in the CARES Act, SomerCor encourages borrowers with current conventional loans to consider the SBA 504 refinance program to help their business. The refinance program provides a path for small businesses to lower their monthly mortgage payments and receive a cash-out portion to help cover a variety of expenses.

Click HERE for the Small Business Guide and Checklist.

Contact the SomerCor Team With SBA 504 and Refi Questions

Paycheck Protection Program (PPP)

The CARES Act makes temporary changes to the SBA 7(a) loan program by providing a 100% loan guarantee for SBA PPP loans of up to $10 million per small business.

  • Small businesses and sole-proprietorships can apply on April 3, 2020. On April 10, independent contractors and self-employed individuals can apply.
  • Loans can be used for payroll support, such as employee salaries, paid sick or medical leave, insurance premiums, and mortgage, rent, and utility payments.
  • Waives collateral and personal guarantee requirements as well as the credit elsewhere test for funds.
  • Eligible businesses must have been operating on February 15, 2020, and the borrower must provide a lender with a good faith certification of need.
  • PPP provides loan 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.
  • For any amount not forgiven, the maximum term is 10 years at a maximum interest rate of 4%.
  • Entities will be eligible to apply if they were harmed by COVID-19 between February 15, 2020 and June 30, 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.

Loans are available through June 30, 2020.

Review the Payment Protection Program Loan Guidance

These loans will be administered by lenders certified by the SBA who have selected to participate in the program. The U.S. Department of Treasury provided the following guidance and sample application to help prepare:

PPP Guidance for Lenders
PPP Guidance for Borrowers
Sample Paycheck Protection Program Application

For borrowers interested in utilizing the PPP loan, now is a great time to collect the following documents:

  • Financial statements – Interim 2020 income statement and balance sheet and full year 2019 income statement and balance sheet.
  • Tax Returns – last three (3) years of federal returns for business.
  • 2019 payroll information.
  • Current organizational documents – Bylaws, articles and operating agreements.
  • General liability insurance information.
  • Current building lease & any amendments.