Episode 47: Covid-19 Financial Resources for Non-Profits and Small Businesses

Mont and Gloria discuss the interdependencies of small business and non-profits. Mont shares extensive information on what he has learned from the SBA and also describes the grant funding from the SBIR as well as the resources provided by the Purdue Commercialization and Manufacturing Excellence organization.

Loans to Eligible Businesses: This provision provides Treasury $500 billion to provide loans and loan guarantees. To be eligible for this program, a company must not otherwise receive adequate economic relief from other provisions of the bill.
All direct lending must meet the following criteria:
Alternative financing is not reasonably available.
The loan is sufficiently secured or is made at an interest rate that reflects the risk.
The duration is as short as possible, with a maximum term of five years.
Borrowers and their affiliates cannot engage in stock buybacks (unless contractually obligated).
Borrowers cannot pay dividends until the loan is no longer outstanding or one year after the date of the loan.
Borrowers are prohibited from reducing their workforce below March 24, 2020, levels until Sept. 30, 2020.
The company must be domiciled in the United States, with a predominantly U.S. employee base.
For businesses critical to national security, their operations must be jeopardized by COVID-19-related losses.
Until one year after the loan is outstanding, recipients of any direct lending are barred from increasing compensation for an officer or employee whose total compensation exceeds $425,000.
Limits on severance packages for these employees are imposed.
Executives earning more than $3 million in 2019 compensation may not earn from the $3 million plus 50% of the excess over $3 million.
Of the $500 billion, $46 billion is set aside for direct lending to specific industries.
$25 billion for passenger airlines
$4 billion for cargo air carriers
$17 billion for businesses important to maintaining national security
Small Business Loans: This provision provides $350 billion for small business loans administered by the Small Business Administration under the new Paycheck Protection Program. This would provide loans of up to $10 million per company; loan size would be dependent on a company’s payroll.
The loans are available to companies with no more than 500 employees or that meet the applicable size standard for the industry as provided by the SBA if higher.
Loans can be forgiven. The amount of the forgiveness is equal to the amounts spent by the borrower during the eight weeks from loan origination on payroll costs (up to $100,000 in wages), mortgage interest, rent or utilities (subject to certain restrictions).
The forgiveness amount is reduced by layoffs (though employer may rehire workers to mitigate this reduction) or pay reductions in excess of 25%. Amounts forgiven are not treated as taxable income to the borrower.
Loan amounts can only be used for payroll, mortgages, rent, insurance premiums and utility payments. Companies could not apply for both an SBA disaster loan and a loan under this program. This program is only in place through Dec. 31, 2020.
For eligibility purposes, the provision requires lenders to determine whether a business was in operation on Feb. 15, 2020, and has employees, instead of repayment ability.
Borrowers are not permitted to receive both an SBA economic injury disaster loan and a loan under this new program, unless the disaster loan is unrelated to COVID-19.
Borrowers must certify that the loan is necessary because of COVID-19 and that the proceeds will be used for payroll and specified other uses.
Fees for borrowers participating in the program are waived.
Maximum term is 10 years, and maximum interest rate is capped at 4%.