By now, you probably have read about the aspect of the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by Congress at the end of last month which gives until June 30, 2020 to file an application under the Paycheck Protection Program (PPP). Although the PPP is intended to help with the impact of the COVID-19 pandemic on employers of fewer than 500 persons, much of the commentary regarding the loan program indicates that only with legislative relief will it be afforded to cooperatives and condominiums.
While we often look to legal counsel to direct our clients, the intent of the Act and the vagueness of the regulations within it seem to leave room to consider filing so long as the bank you have lending relationship or bank account will accept the application or use a third party service that works directly with another Small Business Administration (SBA) lender.
Regardless of your Board’s decision if your property is experiencing injury, most likely from commercial tenants either indicating that they can’t pay their rent, staffing vacancies which need to be filled by quite expensive security services, or numerous unit owners not being able to pay their monthly charges; then you may want to consider another aspect of the Act, a SBA Economic Injury Disaster Loan (EIDL). We do have cooperative and condominium clients with SBA disaster loans, so it seems that the requirements appear to be different for EIDLs.
Until the Act, situations like the one we are currently experiencing did not qualify for disaster loans. However, everything about the current events should be considered disastrous and thus now, disaster loans are available for coops and condos. The EIDL is quite different from the PPP, in that the amount of the loan is subject to the amount of your losses and there is presently no provision for forgiveness. However, at 3.75%, for properties in need of cash, they provide an option without the longer approval process of standard commercial loans. You will be assigned a revolving lender by the SBA so there is no need to verify if a bank you have a relationship with are accepting applications. Presently, that is one of the important barriers that properties are dealing with presently as they decide whether to process PPP applications.
High demand for the EIDL has led to important changes limiting the size of the payouts for small-business owners. The Massachusetts District Office of U.S. Small Business Administration announced that, nationwide, the SBA has decided to implement a $1,000 cap per employee on the up to $10,000 maximum advance. So, a business with three employees, for example, would be eligible to receive only $3,000 up front, as opposed to the originally stated $10,000.
Other aspects that are beneficial are that the loan term is 30 years and it can be repaid early at any time or in any partial amount. The downside is the application process needs to be with a lender that doesn’t know you and even though the intention of Congress was ease in documenting need and qualification. There has not been enough feedback on this program to conclude whether those aspects are in place.
The initial application is online, and even though the loan is non-recourse, the application does require personal information of at least an individual. Taking the first step of filing the application is quite easy, although there has been a lag in excess of the intention turnaround of several days. When appropriate, Cooperatives and Condominiums, and their managing agents should consider moving forward with preparing these applications, and not necessarily wait too long and possible see the program run out of allocated resources.
Overwhelming interest in the program has slowed the process which makes it difficult to estimate when applicants will be able to expect their advance. Additionally, as of April 16th the SBA indicated it is currently unable to accept new applications for both the EIDL and PPP programs based on available appropriations funding. Applicants who have already submitted their applications will continue to be processed on a first-come, first-served basis.
The Czarnowski & Beer team is dedicated to providing timely, accurate information on all aspects of the CARES Act and the current economic crisis that affect our clients. For more information on how you can prepare for cash flow disruptions see our latest blog post here. If you’re interested in reading our full summary of the provisions outlined for coops and condos in the Act, download our guide here.