Posted April 21st, 2020 in Top Stories, Legal Insights with Tags COVID-19, COVID-19 for Nonprofits, Business Loans
COVID-19 Loan Options For Businesses and Nonprofits with More than 500 Employees
Some of the COVD-19 pandemic emergency loan programs limit eligibility to businesses and to nonprofits based on their size or other qualifications. Businesses or nonprofits with more than 500 employees are often left wondering what loans they can apply for, and which loans would be the best for their organizations and their needs.
Table 1 below summarizes the eligibility requirements of the potential loan options available for organizations with more than 500 employees, and Table 2 outlines the other loan terms. As the tables reveal, organizations with 500 or more employees may be eligible for more than one loan option; however, the loan requirements and restrictions vary. An organization will want to review the loan terms carefully to determine what makes the most sense for its business and current needs as a result of the pandemic.
The SBA announced that it is no longer receiving new loan applications for the Paycheck Protection Program and Economic Injury Disaster Loan program due to funding limitations. However, these loans may become available again if Congress enacts new legislation to further fund these programs.
Table 1 – Eligibility Requirements
Program Type and Loan Overview | Eligibility Requirements | Does an Organization with More Than 500 Employees Qualify? |
Paycheck Protection Program (PPP)* | Small businesses and charitable nonprofits operating on 2/15/2020:
| A larger organization can only be considered if it had an average of fewer than 500 employees over the last 12 months, or if it meets the SBA size standards. |
Economic Injury Disaster Loan (EIDL)* | For-profit businesses in operation before 1/31/2020:
Certain nonprofit organizations in operation before 1/31/2020, including 501(c) entities, and certain 501(d) or 501(e) entities. However, religious institutions and organizations primarily engaged in lobbying or political activities are excluded. No size limitations for nonprofits. | A for-profit business can only be considered if it meets the same standards as the PPP, set forth above. |
Main Street Lending Program
| Either (i) fewer than 10,000 employees, or (ii) less than $2.5 billion annual revenue | Yes |
Assistance for Mid-Size Business Program | Businesses and nonprofits with 500 to 10,000 employees that have not otherwise received adequate economic relief in the form of loans or loan guarantees provided under the CARES Act. | Yes |
Table 2 – Comparison of Other Loan Terms
Paycheck Protection Program | Economic Injury Disaster Loan (EIDL) | Main Street Lending Program | Assistance for Mid-Size Business Program | |
Overview | The Program is geared towards preserving the viability of the entity through employee retention by covering payroll and related benefits costs. | The EIDL proceeds may be used to cover ordinary and necessary operating expenses and reductions in working capital. | A loan program created by the Federal Reserve to support lending to small and medium-sized businesses that were in good financial standing before the onset of the COVID-19 pandemic. | Largely undefined loan program to be created by the Treasury Department to fill the gap between the loans for smaller employers and the industry stabilization loans to big businesses. There are two types of loans: (i) New Loans and (ii) Expanded Loans. |
Permitted Uses |
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| Borrowers must make “reasonable efforts,” using the proceeds of the loan to maintain payroll and retain employees during the term of the loan. | To retain 90% of the workforce at full wages and benefits through 9/30/2020, and intention to restore 90% of the workforce in place on 2/1/2020. |
Loan Amount | The lesser of $10 million or 2.5 times the average total monthly payroll costs from the one-year (look back) prior to the date of application. | Up to $ 2 million; however, the actual loan amount varies depends on the amount of economic injury. | Minimum of $1 million | Unspecified |
Interest Rate | 1% | 2.75% for nonprofits and 4% for small businesses | Adjustable rate of SOFR + 250-400 basis points | Interest capped at 2% |
Term | 2 years | Up to 30-years. The repayment term will be determined by your ability to repay the loan. | 4 years | Unspecified |
Deferred Payments | Payments (principal and interest) are deferred for 6 months | Payments (principal and interest) are deferred for 1 year | Payments (principal and interest) are deferred for 1 year | Principal deferred for first 6 months (i.e., interest only due for first 6 months) |
Forgiveness | The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (at least 75% of the forgiven amount has to be used for payroll) if employers maintain employment for the 8 weeks after the origination of the loan, or rehire employees by June 30. | $10,000 Grant Advance forgiven (maximum of $1,000 per employee) | No | No |
Collateral and Security | No collateral or personal guarantees required | Up to $200,000 can be approved without a personal guarantee. Amounts over that require a personal guarantee. | Not required for new loans. | Unspecified |
Fees | Neither government nor lenders will charge any fees | There are no upfront fees or early payment penalties charged by SBA | An origination fee of 100 basis points of the principal amount of the New Loan or the principal amount of the tranche for the Expanded Loan. The lender will pay a facility fee of 100 basis points of the principal amount of the loan. The lender may require the borrower to pay this fee. | Unspecified |
Certification | Good-faith certification that the need for the loan is based on economic conditions; funds will be used to retain workers and maintain payroll or make mortgage, lease, and utility payments; and no duplicate application or receipt of funds for same purposes. | Self-certification under penalty of perjury that information on the EIDL application is true and accurate. | An eligible borrower will be required to certify that: (i) it will not use loan funds to repay other loan balances and will not seek to reduce or cancel its loans or lines of credit with any lender (other debt of equal or lower priority cannot be repaid during the term of the loan, except for mandatory principal payments); (ii) it requires the loan as a result of the impact of the COVID-19 pandemic, and that during the term of the loan, it will make “reasonable efforts” to maintain its payroll and retain its employees; (iii) it meets the applicable EBITDA ratio condition; (iv) it will comply with the distribution, stock repurchase and executive compensation restrictions set forth in the CARES Act; and (v) it is eligible to participate under the conflicts of interests rules. | Good-faith certification that the need is based on economic conditions; funds will be used to retain and restore employment; it won’t abrogate collective bargaining agreements; and it will remain neutral in union organizing efforts, among other things. |
Restrictions on obtaining other loans | May only receive one PPP loan | Can receive an EIDL and a loan under the PPP if they are used for different purposes. | If obtained an EIDL or PPP, not prohibited from participating in Main Street program. | Unspecified |
Other Terms and Relevant Information | SBA longer accepting new applications based on available appropriation funds at this time |
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| Additional program information is forthcoming |