April 2020

Making sense of Payment Protection Program

April 8, 2020April 8, 2020 Martin

CARES act, coronavirus, money, loan, sbna, sba,

Do I Qualify for The Small Business Stimulus Loans?

To qualify for SBA funding under this new program, you must be a small business as defined by the SBA. This includes:

Small businesses or non-profit 501(c)(3) organizations with 500 or fewer employees
Small businesses, 501(c)(19) veteran’s organizations or tribal concerns that meet the SBA size standards (See SBA size standards here.)
Sole proprietors or independent contractors

Businesses in the food or hospitality industry (NAICS codes beginning in (72) may be eligible on a per location basis.

In addition the normal affiliation rules are waived for franchises or businesses receiving financial assistance from a Small Business Investment Company.

The business must be in operation by February 15, 2020.

How Much Money Can I Borrow?

The basic answer is that the maximum loan amount is 2.5 times the average monthly payroll for the 12 months preceding the date the loan is made, up to a maximum of $10 million

Where Can I Get One of These Loans?

Individual lenders, including many banks, credit unions and some online lenders will make these loans.

What Can I Use the Funds For?

You can use the loan proceeds for:

payroll costs;
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;
payments of interest on any mortgage obligation (but not to pay principal or to prepay a mortgage)
rent (including rent under a lease agreement);
utilities;
interest on any other debt obligations that were incurred before the covered period,
refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020

How Fast Will I Have to Repay It?

These loans have a maximum term of two years. You can prepay at any time without penalty.

What Is the Interest Rate and Fees?

The interest rate for these loans will be 1% for all lenders that make them. Normal 7(a) loan fees are waived.

Is there a Personal or Business Credit Check?

None is required.

How Soon Do I Have to Start Making Payments?

Payments will be deferred for six months (though interest will accrue).

How Fast Will I Have to Repay It?

These loans have a maximum term of two years. You can prepay at any time without penalty.

How Soon Do I Have to Start Making Payments?

Payments will be deferred for six months (though interest will accrue).

How Do I Get Loan Forgiveness?

If you get one of these loans, you can request forgiveness of the principal portion of the loan for the eight week period after you get the loan that covers:

Payroll costs
Interest on a mortgage
Rent
Utilities

However, no more than 25% of the forgiven amount can be attributed to non-payroll costs.

Your loan forgiveness will be reduced if you decrease your full-time employee headcount. It will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annually in 2019. You may also receive forgiveness for additional wages paid to tipped workers.

In addition:

Payroll includes the costs listed under the section “What Does Payroll Include?” below.
Forgiven debt will not be taxable.
The mortgage, rent and utilities covered in this section must be in place before February 15, 2020.

How the CARES act can help your Business

April 8, 2020April 8, 2020 Martin

What is the CARES act?

The Coronavirus Aid, Relief, and Economic Security Act, is a law meant to address the economic fallout of the 2020 coronavirus pandemic in the United States.

What is the SBRA 2019 Law?

By cutting red Tape, removing limitations and restrictions, SBRA law makes small business chapter 11 feasible.

How does this law help me?

Now faster and less expensive, SBRA allows you file chapter 11 and reorganize your debt while keeping your business open.

Do I qualify for the SBRA Chapter 11?

Businesses with debts totaling not more then $2,725,625 dollars can qualify.

How Does the CARES act affect this?

Its amends eligibility and increases the debt threshold now up to $7,500,000 for the next year.

Where can I find more information?

We have a free Ebook, and staff available to help answer any questions that you have.

America’s Small Business Lifeline Already Running Out Of Money On Day 1 Says Wells Fargo CEO.

April 7, 2020April 7, 2020 Martin

Tuesday April 7, 2020 by JLG Admin

Charles Shcarf — CEO of Wells Fargo, Charles W. Scharf

Last month, the US Congress created a $350 billion fund to keep small businesses solvent and workers on payrolls, amid widespread commercial shutdowns to try and contain the coronavirus pandemic. Demand for the program is proving to be immense, and there are signs that it could run out of money.

Wells Fargo said Sunday evening that it has exhausted its $10 billion capacity for lending under the SBA’s Paycheck Protection Program as the bank operates under a regulatory asset cap.

In other words, amid the pandemic-induced downturn that has some talking of an impending economic depression, one of the nation’s largest lenders will largely be kept on the sidelines.

“Today, the company continues to operate in compliance with an asset cap imposed by its regulator due to actions of past leadership,” Wells Fargo CEO Charlie Scharf said in a statement Sunday. “While we are actively working to create balance sheet capacity to lend, we are limited in our ongoing ability to use our strong capital and liquidity position to extend additional credit.

The legislation for the Paycheck Protection Program was written quickly and got off on to a rocky start on Friday: The CEO of small business lender Fountainhead said he still had a number of unanswered questions about it and that his company didn’t have a way to submit applications to the Small Business Administration, which is guaranteeing the loans.

Wells Fargo said Sunday evening that it has exhausted its $10 billion capacity for lending under the SBA’s Paycheck Protection Program as the bank operates under a regulatory asset cap.

In other words, amid the pandemic-induced downturn that has some talking of an impending economic depression, one of the nation’s largest lenders will largely be kept on the sidelines.

Wells Fargo closing its loan window under the special SBA program is likely to stun millions of small business owners across the country that bank with Wells Fargo and were planning to apply this week for the SBA PPP loans that eventually become grants if the money is used to keep employees on the payroll and to pay other eligible expenses.

Small business owners’ lenders and accountants are expecting a wave of loan applications to come in this week for the SBA program that began on April 3.

Bank of America, the first big bank to get up and running, received more than $22 billion of loan requests from 85,000 small enterprises, according to CNBC. Wells Fargo said yesterday that it has already received $10 billion of requests from small businesses, which is enough to exhaust its lending capacity under program.

Getting the money out quickly was sure to be a challenge. The SBA handled about $30 billion of small business lending last year, and now it’s charged with pumping out some ten times that amount as quickly as possible.

Hundreds of lenders were still trying to get approval to access the SBA system after it went live on Friday, according to Independent Community Bankers of America. The agency’s systems were overwhelmed by the traffic, while banks remained “frustrated with a myriad of unanswered questions and lack of clear instruction,” the trade group said. The amount of money available is likely to be far too little.

As the world reels in uncertainty about life and death, America’s small business owners are realizing quickly that there are no options, short term or long term. When Wells Fargo, one of the world’s largest banks, exhausted its disaster resources on the first day the message was clear that no help is coming anytime soon. With no cure on the horizon, no date to possibly reopen, and limited financial lifeline’s, it is only a matter of time before small business owners simply start giving up. An America with its small businesses out of hope and giving up is right around the corner, and the outlook is less than promising.

3 Ways Small Businesses Will Survive COVID-19

April 5, 2020April 5, 2020 Martin

Americans all across the country are being urged to remain in their residences and practice social distancing, as more and more local and state governments are issuing stay at home orders. As a result of the social isolation required to manage the state of the COVID-19 pandemic, over 10 million Americans have filed for unemployment. It has been estimated by the Federal Reserve Bank St Louis District that job losses could total up to 47 million, an unemployment rate of 32%, exceeding that of the Great Depression. While these projections may be impacted by the $2 trillion coronavirus relief act allocating financial relief programs, it is fair to say that no individual or business will be unaffected.

Possibly the most affected by the implications of this crisis, will be the small businesses that are vital to the health of our nation’s economy, providing a GDP contribution most recently recorded to be $5.9 trillion. Before the pandemic, small businesses employed 58.9 million people in the United States, nearly half of all the employees in the private sector. In order for small business in America to survive this health and economic crisis, there are three strategies that should be top of mind.

1. Lobby for Liquidity

Prior to the pandemic, driving a small business forward was already an uphill battle. Approximately only half of small businesses in America stayed open past 5 years according to the Small Business Administration. This is typically due to the lack of cash flow to cover the heap of expenses that coincide with any small business; rent, utilities, payroll, cost of goods, liquid cash flow to the owners, etc. With the impending obstacles ahead, including decrease in revenue due to slowed services, expenses of transitioning to a virtual business, financial distress and low morale of employees, and difficulty obtaining investments, the entrepreneurs and small businesses of America will quickly reach a breaking point.

The best way for small business owners to address this liquidity concern is to lobby for state and federal governments to provide immediate assistance with cash flow to cover expenses. Entrepreneurs and owners can support proposals such as the “Small Business Workforce Stabilization Fund,” which would forgive financial assistance provided to small businesses that were financially stable pre-pandemic, and maintain the same number of employees a year after the crisis. Additionally, this legislation proposes to increase the SBA Express loan limit from $350,000 to $1 million. Proposals such as this will keep small businesses afloat that will otherwise have to shut down and further contribute to the growing number of unemployed Americans.

2. Capital is Crucial

The largest contributor to cost of goods is almost uniformly payroll expenses. And while loans provided by the SBA solve an immediate problem, they can also add financial pressure on owners whose debt has increased and have to allocate funds to pay back fees right away. These pressure often lead to owners making the difficult decision to resort to lay-offs.

A good solution to assisting small business owners with these expenses is the proposed $300 billion relief plan titled the RESCUE (Restoring Economic Security, Confidence, and User Endurance) Business Act. With this legislation, the SBA loan limit previously mentioned would be implemented so that small businesses can cover costs and ensure working capital. And all SBA 7(a) loan fees would be waived for one year, and a 90% loan guarantee would be implemented.

3. Participate in Local Politics

American activist Gloria Steinem summed up the importance of your action when she stated, “The future depends entirely on what each of us does every day; a movement is only people moving.” The voices of small business owners can make a powerful impact on the direction of our nation’s economy, if they are heard. If you stay silent, massive corporations will speak for you and make crucial decisions about economic policy and emergency financial relief legislation that will decide the future of your business.

If you are looking for a way to have influence, engage with your political leaders via social media, emails, phone calls, or even a traditional letter, and express the urgency of your need for financial relief. According to the Harvard Business Review, “franchising stands to lose 26,500 small businesses due to COVID-19 alone and the wrong legislation will raise the number of closures to 33,000. For small businesses outside of the franchising industry, this number could be even higher.” You can protect your small business by maximizing liquidity, accessing capital, and doing your part to push the legislation that will determine our nation’s economic future.

What New Bankruptcy Law Means for Small Businesses

April 3, 2020April 3, 2020 Martin

Small businesses often struggle to reorganize effectively under Chapter 11 of the Bankruptcy Code in the past. This was largely due oo To address this issue, Congress passed the Small Business Reorganization Act of 2019, creating a new subchapter of Chapter 11 of the Bankruptcy Code. The Act takes effect in February 2020. Businesses, lenders and other creditors should understand the risks and opportunities created by this new subchapter of the Bankruptcy Code.

The Act aims to make small business bankruptcies faster and less expensive. At this time, the Act only applies to business debtors with secured and unsecured debts, subject to certain qualifications, less than $2,725,625. Our Los Angeles based experts are here to help you maximize including the po

Some notable provisions of the Act include:

Appointment of a Trustee. The Act provides for the appointment of a trustee who will help facilitate reorganization and may monitor payments to creditors under the debtor’s confirmed plan.
Streamlining of the Reorganization Process. Only the debtor can propose a plan of reorganization, and must submit its plan within 90 days of the bankruptcy filing. The court does not have to approve a separate disclosure statement, reducing the time and expense necessary to confirm the debtor’s plan. The Act does not provide for a committee of unsecured creditors, absent an order from the Court. Removing the creditors’ committee should further reduce costs associated with the bankruptcy.
Elimination of the Absolute Priority Rule. In a typical Chapter 11, the debtor must pay unsecured creditors in full if the business owners wish to retain their equity interests. The Act removes this requirement. This is a significant change from prior law. In most cases, particularly with closely-held businesses, the business owners want to keep their ownership interests. Under the Act, plan confirmation only requires that the plan does not discriminate unfairly, is fair and equitable, and provides that the debtor will contribute all of its projected disposable to the plan.
Modification of Certain Residential Mortgages. The Act also removes the categorical prohibition against individual small business debtors modifying their residential mortgages. A small business debtor may now modify a mortgage secured by a residence if the underlying loan was for commercial purposes.
Delayed Payment of Administrative Expense Claims. The Act removes the requirement that the debtor pay priority claims – including for goods and services provided to the debtor during bankruptcy – on the effective date of the plan. A small business debtor may now stretch payment of these claims out over the term of the plan, which will typically last about five years.
Discharge Limitations. The scope of the small business debtor’s discharge of debts will now depend upon the terms of the plan and the consent of creditors. If the creditors contest the plan, exceptions to a discharge, such as fraud and breach of fiduciary duty, will apply to the small business debtor. This is a departure from a typical business Chapter 11 that only has very limited exceptions to discharge.

The benefits of Chapter 11 reorganization have been elusive to small business debtors given their size and limited financial resources. The Act attempts to remedy these obstacles. If the Act proves successful, there may be a legislative push to increase the debt limit and provide more businesses access to the new subchapter.