Our team of nonprofit accounting professionals has been fielding many questions regarding the CARES Act, especially the SBA 7(a) Paycheck Protection Program. The two most common questions being asked right now are: “When will the funds be available?” and “Is there a high probability that a loan will turn into a grant (loan forgiveness)?”
In recent conversations with JP Morgan Chase, we have learned a few things about how Chase plans to administer this program. Of course, the process will be handled differently from bank to bank, so please reach out to your local bankers to confirm details.
The one-page application will not include the traditional underwriting process; that way, the funds can get into employers' accounts as quickly as possible. There will certainly be other requests to supplement the application (Form 941s, earnings reports, possibly bank statements, tax returns, or financial statements, etc).
Chase Bank will have a link on the main page of their website to apply; Chase anticipates this link will be available this Friday, April 3, once the software is written.
In Chase's case, your organization must have an account with the bank before submitting a loan application. Other banks may or may not require that you hold an account with them as well.
The local bank (in Chase's case, their SBA loan team) will process the loan applications; while SBA will not have loan fees, the local lender may assess their own fees to recover their administrative costs.
If you have existing loans with the bank, a deferment is possible with a simple application. With Chase, they are looking to make this a standard 90-day deferment for now.
Any applications for disaster relief should be made directly with the SBA and not with the local bank.
When we asked Chase what their reasonable expectation of the availability of funds may look like, they couldn't give us a solid answer as much of it depends on the volume of incoming applications, which could be overwhelming. They did suggest this will be a "first-in, first-out" approach. However, the intent with this Act is that the turnaround time will be much shorter than with a conventional loan.
A very general summary of the Paycheck Protection Program of the CARES Act:
Intended for businesses and nonprofits with fewer than 500 employees; meant to provide approximately 8 weeks of cash-flow.
No collateral or personal guarantees are required; 100% federally-guaranteed loans.
Funds may only be used for salaries/wages and taxes, group health care, rent, utilities, and mortgage interest.
Loans are tied to payroll costs: lesser of $10,000,000 or 2.5 times the average total monthly payroll costs incurred during the previous year, with a negative adjustment for anyone making more than $100,000 annually.
Interest rates are capped at 4%.
Repayments on the loan are deferred from anywhere between 6 and 12 months before a repayment period of up to 10 years.
Potential loan forgiveness is reduced in proportion to the reduction of the number of staff retained compared to the prior year and/or a 25% or greater reduction in employee compensation.
Potential loan forgiveness is determined based on eligible costs expended during the 8-week period that begins when the loan is funded.
Nonprofit organizations are encouraged to reach out to their attorneys, accountants, banks, and creditors to help determine how the CARES Act will impact your own unique financial circumstances.