Small businesses in America are facing an unprecedented economic disruption due to the novel Coronavirus outbreak. In the midst of all this uncertainty, we have questions on what to do next in order to ensure the survival of our business. Hellenic News of America took to Instagram to reach their readers through a virtual interview-series called “Live with Aphrodite”, hosted by Hellenic News of America publisher, Aphrodite Kotrotsios. Greek-American attorney Agatha Mingos, a senior associate with the law firm Koutsoudakis and Iakovou, based out of Manhattan, joined Aphrodite to help people better understand the CARES Act.
Aphrodite Kotrotsios: What is the CARES Act?
CARES stands for Coronavirus, Aid, Relief, and Economic Security Act. It is a financial package that was passed by the Federal government to help Americans and particularly small businesses.
Aphrodite Kotrotsios: What is PPP?
PPP is short for Paycheck Protection Plan and it is one of the programs that passed with the CARES Act. It provides small businesses with loans to help them through these tough times.
Aphrodite Kotrotsios: How do you know if you are eligible for the PPP?
You may be eligible for the PPP loan program if you are a small business, with less than 500 employees and the business must have been in operation on February 15, 2020, and have paid employee salaries and payroll taxes.
Aphrodite Kotrotsios: Can you apply if you are self-employed, a sole proprietor or an independent contractor?
Yes, and non-profit and veteran organizations may also apply as well.
Aphrodite Kotrotsios: What can you use PPP funds for?
You may use the PPP funds for: payroll, healthcare costs, mortgage interest payments, rent and utility payments, and interest on pre-existing debt.
Aphrodite Kotrotsios: How do you apply for the PPP loan?
You apply directly through your local lender that is accepting PPP loans.
Aphrodite Kotrotsios: How is the amount of the loan determined for a PPP loan?
The determination is formula based. You take the average monthly payroll cost and multiply it by 2.5. You may look to the yearly payroll cost on taxes and divide by 12 and then multiple by 2.5. That is the maximum amount that you may take.
Stated differently, the loan cannot exceed the sum of 2.5 times the average monthly payroll cost during the prior year. Max amount each business could receive is $10 Million.
Aphrodite Kotrotsios: What is the interest rate for a PPP loan?
The interest rates for PPP loans range anywhere from the maximum interest rate of 4%, to what most lenders are providing, at or around 1%.
Aphrodite Kotrotsios: When you can apply? Is there a deadline to apply for the PPP loan?
Lenders will begin accepting loan applications again on April 27, 2020, through June 30, 2020.
Aphrodite Kotrotsios: What is the term of a PPP loan?
A PPP loan has a (2) year maturity, which means in 2 years you need to repay the loan.
Aphrodite Kotrotsios: Does someone have to personally guarantee a PPP loan?
Nope, no personal guarantees or additional collateral is required.
Aphrodite Kotrotsios: Are there any fees for applying for a PPP loan?
All fees waived and payments deferred for at least 6 months but not more than 1 year.
Aphrodite Kotrotsios: Can you get forgiveness for portions of the loan?
A borrower can seek forgiveness up to and not to exceed the amount of payroll payments, mortgage interest, rent and utility payments, that are made during the (8) eight-week period following loan origination (as long as amount does not exceed principal). In order to be eligible for forgiveness, 75% of the loan has to be used strictly on payroll cost, and 25% used on utilities and rent, mortgage payments or pre-existing business debt interest.
Aphrodite Kotrotsios: Can you use the PPP to refinance other loans?
When you apply for a PPP loan you are certifying that you will use it for the right purposes. It is mandatory that you use the funds for the requisite purposes. PPP loan proceeds can be used to refinance Economic Injury Disaster loans that were made between January 31, 2020 and the date of the loan. There is no clarification as to whether you can use PPP loan funds to refinance a credit bill, but please note that the PPP loan will not be forgiven if you use more than 25% to pay for business expenses.
Aphrodite Kotrotsios: What if you already applied, can you apply again?
No, if you have already applied through your local lender, your application has been added to a que and will be reviewed in the order it was received. It is crucial to make sure that when you do apply, ALL of the information you are providing is accurate.
Aphrodite Kotrotsios: What if you applied and you have to update your application?
If for example, you realize that you have not requested enough money, it is suggested that you do not update your application. Once your application is updated, you will lose your spot in the que and will not be guaranteed to receive money if you have to start from the beginning. However, if you realize that you made an error and requested too much money, then it is suggested that you update your application as once it is reviewed it will not be accepted anyway due to the inconsistency in your request.
Aphrodite Kotrotsios: How do you check for updates on your loan application?
For updates on applications that have already been submitted, you must direct these requests to your local lender as the SBA will not be providing updates to borrowers on PPP loan applications.
Aphrodite Kotrotsios: If you don’t qualify for a PPP loan is there anything else that can help a small business under the CARES Act?
Another option for small businesses under the CARES Act is the Employee Retention Credit. This credit is not available if you receive a PPP loan. An employer is eligible for this payroll tax credit towards 50% of the qualified wages paid to employees, if during any calendar quarter of 2020 it has had its operations suspended (fully or partially) due to COVID19, or it has experienced a decline in gross receipts of more than 50% compared to the same quarter the year before. The credit will apply to the first $10,000 of compensation to an employee. Qualified wages are determined as follows: If a business has 100 or fewer full-time employees, the credit may go towards wages paid to those employees that were not providing services during COVID-19. If a business has 100 or more full-time employees, the credit may go towards those wages paid to all employees during the applicable quarter where there was a COVID-19 impact.
Aphrodite Kotrotsios: Are there any other loan programs that a small business can apply for?
Yes, there is another Federal loan program called the Economic Injury Disaster Loan (EIDL).
Aphrodite Kotrotsios: What is the EIDL loan?
It is a loan program funded by the SBA, small business administration, for small businesses.
Aphrodite Kotrotsios: How do you know if you are eligible for an EIDL Loan?
You are eligible if you are a small business owner, with no more than 500 employees, or an individual who operates under a sole proprietorship, with or without employees, or as an independent contractor, or a cooperative with no more than 500 employees, or a tribal small business concern, as described in 15 U.S.C. 657a(b)(2)(C), with not more than 500 employees, a business, including an agricultural cooperative, aquaculture enterprise, nursery, or producer cooperative, that is small under SBA Size Standards.
Aphrodite Kotrotsios: How do you apply for the EIDL loan?
You apply directly through the SBA website using the EIDL Portal. The portal is still accepting applications
Aphrodite Kotrotsios: What is the interest rate for these loans?
3.75% for small businesses & 2.75% for non-profits
Aphrodite Kotrotsios: What is the term for the loan?
Aphrodite Kotrotsios: When do you need to start making payments?
One year after loan origination
Aphrodite Kotrotsios: How is the amount determined?
The SBA determines the amount, and a business may be eligible for up to $2 million dollars in loan proceeds.
Aphrodite Kotrotsios: Are there any grants available?
Yes, small businesses can apply for a grant of up to $10,000, which does not have to be repaid.
Aphrodite Kotrotsios: How do you know if you qualify for a grant?
The SBA will determine if you qualify for the grant. In order to be considered, you must check the box on the application, and the SBA will notify you. You may then decide if you would like to accept or deny any portion of the loan that you have been pre-approved for.
Aphrodite Kotrotsios: What can you use the loan amount for?
This loan can be used for financial obligations and operating expenses that could have been met had the disaster not occurred.
Aphrodite Kotrotsios: Does someone have to personally guarantee the loan?
A personal guarantee is required for loans greater than $200,000 by owners of more than 20% of the business, managing members of limited liability companies, or managing members of limited partnerships.
Aphrodite Kotrotsios: How long does the application process take?
The SBA expects to process loan applications within 2-3 weeks after the application is submitted. Allow for an additional 5 days for funding.
Aphrodite Kotrotsios: How do you get an update once you have applied?
Once your application is submitted, the next communication you will receive will not be for several weeks. Within 2-5 weeks you should expect to receive an email from the SBA with loan documents. You will then be directly contacted by a loan officer who will request additional information from you if necessary.
It is important to keep your application number which will be provided to you on after the submission screen on the COVID-19 Economic Injury Loan Application Portal. This application number will be used to identify your loan. To receive updates on your EIDL you must contact the SBA directly and have your application number ready. You will need the application ID number which starts with a 3 to contact SBA.
Aphrodite Kotrotsios: What if a restaurant is completely shut down and doesn’t have any employees on payroll, can they apply for the PPP or the EIDL?
Yes, they can apply for EIDL. They may also apply for PPP but will not qualify to have the loan forgiven since they are not able to meet the ratio of 75% towards payroll costs.
LEASES AND CONTRACTS:
Aphrodite Kotrotsios: Is there anything else a small business can do during these tough times? What if a restaurant completely shut down and had to let go of its employees and didn’t qualify for any loans?
These are definitely unprecedented and very difficult times for small businesses. Most businesses are trying to stay afloat the best way they can. Some other options that a small business has are to: (1) Renegotiate Contracts; (2) Renegotiate Leases; (3) Determine if a Force Majeure Provision applies; (4) check on Business interruption insurance; (5) seek bankruptcy and/or restricting advice.
Aphrodite Kotrotsios: What steps should you take to renegotiate a contract?
First, the entire contract should be reviewed by a qualified attorney that can take into account the case law, statutes and other governmental mandates. If you are initiating the renegotiation, you want to identify what is wrong with the current contract, how is everyone affected by it, and how to avoid a default. With renegotiations, it is important to remember that the agreements may affect individuals differently, prepare for the renegotiation by bringing records of all transactions, and to clearly identify the issues that must be renegotiated.
It is important to have renegotiation tactics remain amicable among the contracted parties. One way to accomplish this is to put yourself in the other person’s position and consider what renegotiation deal points may positively impact them and yourself. If you take this route, then you create a stronger relationship and can positively impact future contracts among the parties. The goal is to avoid “one-off” negotiation strategies that can lead to litigation.
In order to avoid costly litigation, a business owner should review their contract and consult with a skilled attorney to reach out to the other party to renegotiate a contract to reflect how circumstances have changed.
If a business is negatively impacted by COVID-19, it should consider contract renegotiations in order to renegotiate current contractual obligations as well as future deliverables. Businesses that rely on supply contracts of goods or services, such as construction companies or restaurant groups, may want to renegotiate contract terms. Some of the issues that can be considered are: material shortages, no longer being able to import supplies into the country, demand, shipping restrictions, and more. Construction companies may also want to pay attention to renegotiating terms regarding the completion of dates of projects, terms dealing with entitlement to payment, termination and more.
Our firm has been able to help a lot of our clients renegotiate contracts and leases resulting in beneficial results to help them through this difficult time.
Aphrodite Kotrotsios: What is a force majeure provision?
These are common clauses that are often included in contracts and leases, but not always. Force Majeure literally means a superior force, one that is beyond others’ control. It helps address unforeseeable circumstances – such as acts of God, natural disasters, fires – that prevent someone from fulfilling a contract. Some provisions include language that excuses performance due to a pandemic or epidemic. Not all do though, so it is important to ready the provision carefully and in conjunction with the rest of the document.
This is often helpful in being able to leverage negotiations in scenarios where for example a restaurant or hospitality group receives supplies from an international vendor and the vendor can no longer send these supplies due to government orders.
Depending on the language, it may or may not apply, but a skilled attorney can assist with negotiations in reaching an agreement with the other party to enforce its application given the circumstances.
Aphrodite Kotrotsios: Is there a way that you can temporarily avoid paying rent?
You can try to renegotiate your lease with your landlord or try to reach an abatement or deferment agreement in order to alleviate the financial burden of paying rent during this difficult time.
Aphrodite Kotrotsios: What steps should you take to renegotiate a lease?
Similar to a contract, the entire lease must be reviewed. You should work with a skilled attorney that can help guide you with regard to the provisions and how they may be renegotiated to your benefit. The goal is to find a solution that both the landlord and the tenant can live with, and a solution for the business which can help it continue during these tough times.