Getting Assistance on Existing Loans or Obtaining a New Loan in the Wake of Coronavirus

Businesses and individuals in the U.S. and worldwide are now affected by forced closures and economic slowdowns due to COVID-19. If you are a sole proprietor, contractor, or business owner you might need to obtain new capital in the form of loans. Moreover, you might need to defer payment on existing personal loans or mortgages. Below is information on new and enhanced programs designed to help you and your business thrive after the coronavirus.

Getting Assistance on Existing Loans:

Deferring payments is all about communicating with your lender or mortgage servicer. Contact them as soon as possible to find out what kind of help they can offer you.

Look to see if your mortgage is owned by Fannie Mae (www.knowyouroptions.com/loanlookup) or Freddie Mac (ww3.freddiemac.com/loanlookup). If they are owned by one or the other, they are offering forbearance for up to 12 months, waiving assessments of penalties and late fees, halting foreclosure for a period of time, suspending credit bureau reporting of delinquencies related to forbearance, and loan modifications to lower payments or keeping payments the same after the forbearance period. Other lenders offer similar help. The important step is contacting the lender to work out a plan.

Visit the links below for more information:

Obtaining a New Loan:

If you are looking to obtain a new business loan to fund obligations during the COVID-19 pandemic, The Coronavirus Aid, Relief, and Economic Security Act (CARES Act),The Families First Coronavirus Response Act and most recently the Economic Aid to Hard-Hit Small Busineses, Nonprofits and Venues Act provide help in the form of tax credits, enhancements to existing loan programs, and new loan programs.

Some of these programs stand alone, but some are related in that if you participate in one program you cannot participate fully in another. Because of this, take time to review these programs with your financial advisor in conjunction with your tax professional and determine which program will provide you with the most benefit.

Below are some of the basics on small business loans and grants designed to help with COVID-19 business interruption.

The Payroll Protection Program (PPP):

Through a series of legislative acts, the Federal government has provided funding for Payroll Protection Program (PPP) loans to eligible small businesses. The idea of the PPP is to help retain employees and keep businesses whole during the pandemic downturn. The highlights of the current PPP are below:

  • Previous PPP recipients may receive a second loan. Among other stipulations, a business should have 300 or fewer employees, have used or will use all of the first PPP loan and can show a 25% gross revenue decline in any quarter of 2020 compared to the same quarter in 2019.
  • First time borrowers should have 500 or fewer employees but are not required to show a reduction in revenue.
  • Borrowers may receive up to 2.5 times their average monthly payroll costs, with a loan maximum of $2M for previous borrowers and $10M for first time borrowers.
  • Special rule for hotels and restaurants. They can receive up to 3.5 times their average monthly payroll cost.
  • For loan forgiveness, among other things, the borrower has to spend at least 60% of the funds on payroll over the covered period. Additionally. employee and compensation levels need to be maintained over the same covered period.
  • The current application deadline is March 31, 2021, or when the funding is exhausted. Business owners continue to apply through SBA approved banks and online lenders.
  • Reach out to your Parsec advisor for more information and how a PPP loan can fit into your financial plan.

SBA Debt Relief:

  • Borrowers with existing or new 7(a) SBA loans can have six months of principal and interest paid by the SBA.
  • Contact your lender for information on how to obtain these payments.

Economic Injury Disaster Loans (EIDL):

  • Provides loans to small businesses (including sole proprietors) for working capital and normal operating expenses.
  • Apply: covid19relief.sba.gov

Shuttered Venue Operators Grant program:

  • Provides eligible arts organizations and live venue operators or promoters with grants up to 45% of gross earned revenue with a maximum grant being $10M.
  • The program will be administered by the SBA office of Disaster Assistance.
  • The application process is expected to be very competitive, with funding exhausted before all entities are funded.
  • For more information: sba.gov/funding-programs/loans/coronavirus-relief-options/shuttered-venue-operators-grant

This is a fluid situation with new guidance and regulations to be issued by United States Agencies. Please contact your Parsec advisor and business tax advisor for further guidance and information.

Terry Redman, CPA, CFP®
Financial Planning Strategist

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