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On March 27, 2020, Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act, which includes a number of financial resources to benefit business owners and independent contractors — including REALTORS® — dealing with financial damage from the COVID-19 pandemic. The CARES Act, along with prior state and federal stimulus programs, provides several relief programs that can assist real estate brokers in their firms. This Q&A breaks those programs into three categories:
The CARES Act included creation of a Paycheck Protection Program (PPP) for loans to small business struggling to meet payroll and other capital needs. This program, along with existing loan programs for businesses in crisis can help brokers and real estate firms weather the storm.
The federal government, through the SBA, is providing significant relief for small businesses suffering from the impact of the COVID-19 pandemic. Most brokers are likely to be eligible for loans which are being made available through the SBA. The CARES Act makes the following options available to brokers:
- Paycheck Protection Program loans
- Economic Injury Disaster Loans
- SBA Express Bridge Loans
As described below, Paycheck Protection Program (PPP) loans are provided on very favorable terms, and they may be the best option for most brokers. Economic Injury Disaster Loans (EIDLs) also remain an excellent option. If you need immediate financial relief, requesting an advance on an EIDL or arranging an SBA Express Bridge Loan (EBLs) (discussed below) with your lender are good options.
Note: You cannot apply for both PPP loans and EIDLs if you plan to use the loan proceeds for COVID-19 relief. You should carefully review the options available to select the loan that will be the best fit for your needs and circumstances.
What is a Paycheck Protection Program loan, and who qualifies?
The CARES Act has created the Paycheck Protection Program (PPP), an expansion of SBA’s 7(a) loan program for providing financial assistance to small businesses.
Businesses with fewer than 500 employees — including sole proprietors, independent contractors, and other self-employed individuals — all qualify for PPP loans. Most real estate brokers and real estate firms are therefore likely to qualify.
Borrowers are required to make a good faith certification that they have been affected by COVID-19 and will use funds to retain workers and maintain payroll and other debt obligations. Additionally, borrowers must certify that they have not previously received nor applied for a loan for the same purpose, such as an Economic Injury Disaster Loan (discussed below).
How much money can I borrow with a PPP loan, and what can I use the money for?
Borrowers can obtain a loan of up to $10 million. The actual loan size borrowers receive will be determined by a formula based on average total monthly payments over the prior year for payroll costs. Consult with your lender to determine whether you wish to apply for the maximum loan you are eligible for, or whether you wish to apply for a lower amount.
Formula for firms:
- Determine payroll costs for each broker, agent, and employee during the previous year. Payroll costs include employee salaries and compensation to independent contractors (up to an annual rate of pay of $100,000 per person), hourly wages and cash tips, paid sick or medical leave, and group health insurance premiums.
- Divide the total yearly payroll expenses by 12 to determine average monthly payroll expenses for the business, then multiply it by 2.5. The resulting number will be your maximum PPP loan amount.
Formula for sole proprietors:
- Determine the amount of income you received from real estate transaction commissions during the previous year. Round down to $100,000 if your total income was greater than $100,000.
Once received, the loans may be used by brokers for payroll costs (including paid sick leave), employee salaries, rent expenses, mortgage expenses, insurance premiums and other debt obligations during the covered loan period of February 15, 2020 through June 30, 2020. “Payroll costs,” as defined in the CARES Act, includes any compensation to or income of an independent contractor that is a wage, commission, income, net earnings from self-employment or similar compensation. This means that you can use the proceeds of the PPP loan to pay your agents who are struggling to earn commissions on real estate sales during the COVID-19 pandemic. If you operate as a sole proprietor, you can use the PPP loan proceeds as a substitute for the compensation you would normally receive from commissions. (Note: Sick leave tax credits under the Families First Coronavirus Response Act (FFCRA) are not included as “payroll costs” that can be paid with a PPP loan. C.A.R.’s Guidance for Employersregarding the COVID-19 situation provides more information on the FFRCA sick leave tax credits.)
What are the benefits of a PPP loan?
PPP loans are offered on highly favorable terms for borrowers: They are forgivable, they are guaranteed by the government, and payments are deferred.
“Loan forgiveness” means that you are not required to repay your loan. Borrowers are eligible for loan forgiveness, in an amount equal to what the borrower spent during an eight-week period after the origination date of the loan, for the following expenses: (1) payroll costs, including employee salaries and compensation to or income of independent contractors of up to $100,000 per person; (2) interest payment on any mortgage incurred prior to February 15, 2020; (3) payment of rent on any lease in force prior to February 15, 2020; and (4) payment on any utility for which service began before February 15, 2020. However, any reduction in workforce will result in a reduction in the amount of forgiveness of the loan.
The covered period during which expenses can be forgiven extends from February 15, 2020 to June 30, 2020. Borrowers can choose which 8 weeks they want to count towards the covered period, which can start as early as February 15, 2020. In order to obtain loan forgiveness, you will need to carefully document your use of the loan proceeds. This includes:
- For firms: 1099-MISC forms showing payment of loan proceeds to agents and brokers and W-2 forms showing payment of loan proceeds to employees. Other payroll expenditures must also be documented.
- For sole proprietors: 1099-MISC form documenting your receipt of the loan proceeds.
- Receipts demonstrating use of loan proceeds for mortgage, rent, and/or utility payments.
Borrowers will work with lenders to verify covered expenses and the proper amount of forgiveness. If the full principal of the PPP loan is forgiven, the borrower is not responsible for the interest accrued in the 8-week covered period. The remainder of the loan that is not forgiven (if any) will operate according to the loan terms agreed upon by you and the lender.
“Government guarantee” of a loan means that the government assumes the debt obligation for the loan if the borrower defaults. A government guarantees reduces the risk to the borrower.PPP loans are 100% guaranteed by the government through December 31, 2020. After that, PPP loans are 75% guaranteed for loans exceeding $150,000 and 85% guaranteed for loans equal to or less than $150,000. PPP loans will have a maximum interest rate of 4%.
“Payment deferment” means that you are not required to immediately begin making payments to the lender. Borrowers will receive complete payment deferment for PPP loans for at least six months, and potentially up to 1 year. The SBA will disseminate guidance on the process for deferment within 30 days after passage of the CARES Act. Once guidance is issued, C.A.R. will provide step-by-step instructions on how brokers may access deferment.
Where can I apply for a PPP loan?
The United States Small Business Administration (SBA) delegates the authority to make PPP loans to numerous lenders throughout the country. These lenders will be handling the PPP application process.Because PPP is an expansion of the already-existent 7(a) program, the financial institutions that offer 7(a) loans will be offering PPP loans as well. There are thousands of banks that already participate in the SBA’s lending programs, including numerous community banks. All of the largest banks (such as JPMorgan Chase, Bank of America, and Wells Fargo) will be offering PPP loans.Check with your bank - If they currently offer SBA 7(a) loans, they will be offering PPP loans very soon.The deadline to apply for a PPP loan is June 30th, 2020.
How long will it take for me to get a PPP loan after I apply?
According to the Wall Street Journal, it usually takes SBA around one month to process a 7(a) loan. However, government officials have stated that the PPP process will be significantly expedited.
What is an Economic Injury Disaster Loan, and who qualifies?
Economic Injury Disaster Loans (EIDLs) are targeted, low-interest loans to small businesses that have been severely impacted by the coronavirus. They are currently available to small businesses with fewer than 500 employees, including sole proprietors, independent contractors and other self-employed individuals. Because most agents operate as independent contractors, agents can qualify for EIDLs.
Independent contractors who have experienced “substantial economic injury” are eligible for an EIDL. “Substantial economic injury” means the contractor is unable to meet their obligations and pay their ordinary and necessary operating expenses.
The borrower is not permitted to borrow both EIDLs and PPP loans if both loans are related to COVID-19. However, if you received an EIDL loan related to COVID-19 between January 31, 2020 and the date at which the PPP becomes available, you would be able to refinance the EIDL into the PPP for loan forgiveness purposes.
How much money can I borrow with an EIDL?
SBA offers EIDLs of up to $2 million with interest rates of 3.75% for small businesses. Repayment plans are available — up to 30 years — as determined on a case-by-case basis. EIDLs may be used for working capital purposes, including payments of fixed debts, payroll and accounts payable. They may not be used to refinance long term debt.
Where can I apply for an EIDL, and what information do I need?
A streamlined online application for EIDL loans has been made available by SBA at the following link: https://covid19relief.sba.gov/
You will need to provide the following information as part of the application process:
- General information about the business, including EIN (or SSN for a sole proprietorship)
- Gross revenues for the 12 months prior to the date of the disaster (which SBA designates as Jan. 31, 2020)
- Cost of goods sold for the 12 months prior to the date of the disaster
- Personal and contact information for business owners
- Information about where to send funds (bank name, account number, and routing number)
- SBA Form 5 (or SBA Form 5C if you are a sole proprietor)
- Tax Information Authorization (IRS Form 4506T)
- Complete copies of your most recent Federal income tax returns
- Personal Financial Statement (SBA Form 413) completed, signed and dated by the applicant, each principal owning 20 percent or more of the applicant business, and each general partner or managing member
- Schedule of Liabilities listing all fixed debts (SBA Form 2202 may be used)
The CARES Act establishes an emergency grant to allow an eligible entity that has applied for an EIDL to request an advance on that loan of no more than $10,000. SBA must then distribute the advance within three days. An applicant would not be required to repay the advance payment if it is subsequently denied an EIDL loan.
Currently, it is not clear how long it will take for an application to be fully processed once the SBA receives it. C.A.R. will provide an update if that information is made available.
Where can I find more information about EIDLs?
The SBA has an online guide, which is available here.
What is an SBA Express Bridge Loan, and who qualifies?
The Express Bridge Loan (EBL) program authorizes SBA express lenders to provide expedited guaranteed bridge loan financing on an emergency basis for disaster-related purposes to small businesses while those small businesses apply for and await long-term financing. Effective March 25, 2020, SBA expanded the program to include small businesses nationwide. Small businesses that have been adversely impacted by the COVID-19 emergency are eligible. The small business must have been operational when the declared disaster commenced and must meet all other 7(a) loan eligibility requirements.
SBA express lenders are only allowed to make EBL loans to eligible small businesses with which the lender had an existing banking relationship on or before the date of the applicable disaster. Check with your bank to determine if it is currently offering EBL loans and to see if you qualify. Applying for an EBL will be done through your lender.
How much money can I borrow with an EBL, and what are the terms of the loan?
You can borrow up to $25,000, which can be used for “disaster-related purposes” to support the survival and/or reopening of the small business. The maximum EBL loan term is 7 years. The lender may require the EBL borrower to pay the loan, in part or in full, if the borrower is approved for long-term disaster financing (such as an EIDL) that allows loan proceeds to be used for EBL loan reimbursement.
How long will it take for me to get an EBL after I apply?
Because an EBL loan is a bridge loan, first disbursement of the EBL loan must occur within 45 days of the lender’s receipt of an SBA loan number. If the first disbursement is not made within 90 days from receipt of an SBA loan number, the EBL loan will be cancelled.
Where can I find more information about EBLs?
SBA’s EBL program guide is available here: