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PPP or EIDL Loans

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PPP or EIDL Loans

PPP or EIDL Loans


SBA Disaster Loan - EIDL and PPP Considerations

 PPP  “Paycheck protection loan” 

  • Principal based on prior year payroll
    • Need to supply payroll returns and employee data
  • Potential for funds to be “forgiven” grant
  • Two programs available as of June 3, 2020
    • 8-week 75% payroll 25% other costs
    • 24-week 60% payroll and 40% other costs
  • Pros and Cons for both that need to be carefully considered
    • These need to be explored on a case by case basis
    • Keep tight records of:
      • Payroll costs (burdened)
      • Rents and mortgage interest
      • Utility payments
      • Essential costs to maintain business operational 
    • Need to have good accounting/bookkeeping records
      • Comparing period for loan proceeds vs. previous year
      • Submit to bank with request for forgiveness

EIDL "Economic Injury Disaster Loan” 

  • Long term loan
    • Up to 30 years
    • Low interest rate
    • No penalty for early payoff
    • No forgiveness (no grant)
  • Loan principal is based on lost earnings not payroll
    • Based on earnings and COGS
    • No collateral if $25,000 or less
    • Collateral required if over $25,000
  • Periodic financial statements will be required
  • MUST be used for working capital
    • Can not use to expand business or purchase new equipment

SBA Express Bridge Loan

  • Available from lenders directly
    • Faster funding/underwriting
  • Loan will need to get paid back or rolled into disaster relief loan

SBA Disaster Loan Credit Requirements

  • Credit History: Applicants must have a credit history acceptable to SBA.
  • Repayment: Applicants must show the ability to repay the loan.
  • Collateral: Collateral is required for all EIDL loans over $25,000.
    • SBA takes real estate as collateral when it is available.
    • SBA will not decline a loan for lack of collateral, but SBA will require the borrower to pledge collateral that is available (owner’s personal houses might need to be pledged! For loans over $25,000)

Tips for Loan preparation

  • Shareholder / Owner’s credit will be pulled, be prepared
    • Obtain a copy of every owner's credit report (Experian, Equifax, and Transunion)
    • If credit scores are under 700.
      • Prepare a statement explaining the areas of issues in the credit
  • Use the credit report to build the debt (liabilities) portion of Personal Financial statement
    • Identify debt that is listed both on the individual’s (owner) personal credit and on business balance sheet (have that narrative ready)
  • Draft a Loan narrative to include:
    • How the loan proceeds will be used
    • Business Plan and keeping employees on staff
  • Draft Financial projections that show the post-interruption numbers
    • Show you are a profitable business that can repay the loan
  • Beyond the loan application and submitting tax returns, proactively prepare:
    • A Personal Financial Statements for all owners (SBA form 413)
    • Business Debt Schedule SBA form 2202
    • Have books completed up to last month prior to loan application
    • Monthly sales figures from internal accounting records
      • 3 years historic, plus current year with estimate/forecast – SBA form 1368
    • Have all 4506-T Forms readily signed for personal and business tax returns
    • Have copies of extensions filed for 2019 returns (if extension was filed)

We express our thanks to Hector Garcia, CPA for assembling the information used to prepare this page


Bergelin & Murphy, LLC

211 Maple Street, Big Rapids, MI 49307

Bergelin & Murphy, LLC 211 Maple Street Big Rapids, MI  49307
Phone: (231) 796-2832 | Fax:
jeanne@bergelinmurphy.com
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