How to apply for federal relief loans

Here's the process as it applies to restaurants.
Photograph: Shutterstock

In the days since President Trump enacted the $2.2 trillion COVID-19 relief bill popularly known as the CARES Act, administrators have been scrambling to put a system in place for dispersing $350 billion in emergency loans to restaurants and other small businesses. That effort is continuing, with the National Restaurant Association and other groups still seeking tweaks for the sake of clarity.

Still, a process and program are starting to take shape. Here, drawn from a variety of sources, are what we know the guidelines to be as of Thursday for requesting a loan through what’s formally known as the Payroll Protection Program (PPP). Because the situation remains fluid, readers are advised to check with local Small Business Administration (SBA) lenders, their state or local restaurant association and their accountants.

A loan application can be found here. The application process begins Friday, April 3.

Who can apply?
Under the PPP, small businesses are defined as places employing fewer than 500 employees per physical location, or per restaurant, a qualification added specifically for the foodservice industry. The National Restaurant Association has asked Treasury Secretary Steve Mnuchin and SBA Administrator Jovita Carranza to spell out that definition for the benefit of local lenders. (Although the federal government is the source of the funds, the money will be dispersed in large part through local lenders, as per the SBA’s usual model.)

The 500 number is determined by a straight head count: the total number of full- and part-time employees, not full-time equivalents (FTEs).

Employees and revenues must have been negatively impacted by the COVID-19 pandemic. The actual standard states that the loan is necessary because of “current economic uncertainty.”

For the PPP, the SBA is waiving its usual requirement that applicants prove they have sought financing elsewhere. The assumption is that those resources are not available within a feasible time frame, if at all.

How much can I borrow?
Restaurants are eligible for 2.5 times their normal monthly payroll costs, as determined by what they paid before Feb. 15, with two important qualifications. The total loan amount is capped at $10 million, and per-employee pay exceeding $100,000 is excluded from the calculation. Pay for employees residing outside of the United States is excluded.

Servers’ pay can be included in the calculation. Operators in states with a tip credit can apparently use waitstaffers’ total wage and not just the amount paid directly by the employer, though the language of the Act is imprecise on that point.

The compensation of employees who were laid off but rehired can be factored into the loan amount provided they’re brought back by June 30. That provision is intended to entice employers to rehire quickly as the crisis wanes.

Payroll documents will need to be submitted with applications.

How will I be evaluated?
The PPP was conceived as a way of keeping employees on the payroll of businesses that can’t draw the needed funds from their revenues. Toward that end, the loans are intended for businesses that were viable prior to Feb. 15.

However, a number of no-gos for loans have been suspended. Lenders will not be looking at collateral to back the loans, nor an inability of the applicant to secure credit elsewhere. And personal guarantees of the loans are not required of proprietors.

What can I use the funds for?
The main aim of the PPP is to keep employees on the payroll for the eight weeks following the granting of a loan. But in addition to maintaining pay, restaurateurs can use the funds to pay their mortgage, rent or utility charges.

What are my fees?
Borrowers will not be charged an upfront fee.

Because of relief considerations, the PPP assumes that most borrowers can have their loans forgiven (see below). For loans or the portions of borrowed amounts that are not forgiven, all borrowers will be charged an interest rate of 1%, an adjustment from the original rate of 0.5%. No payments are due for six months. Interest will be charged after that time frame.

How can I get my loan forgiven?
If restaurants use the money as directed, much of the loaned amount will be “forgiven”—lawyer-speak for waived. At least 75% of the amount must have been used to pay employees for the eight weeks following the provision of a loan.

Forgiveness also extends to payments during that period for rent; interest on mortgages; utilities; necessary transportation; and telephone and internet services.

If employees are furloughed or fired during the eight-week period, the forgiveness amount is reduced in accordance with a formula set by the SBA.

Where do I apply?
The SBA’s usual network of local lenders will be the initial sources of the PPP loans. A tool for finding those lenders is included on this page of the SBA’s website.

Loans will also be available from federally insured credit unions and depository institutions.

The Treasury Department has invited other financial institutions to seek approval to become PPP lenders. A complete list has yet to be published.

Where can I get more information?
he SBA has shifted to a wartime footing. Ample information about the PPP is available here. Expect delays in loading the pages because of the high volume.

The U.S. Chamber of Commerce has also drafted a step-by-step guide.

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