A Guide for CRE Investors, Small Business Owners and Others Impacted by Coronavirus
July 1, 2020: As of July 1, the SBA is no longer accepting applications for Paycheck Protection Program loans. While the PPP is no longer an option, there are still several different loan options available for small businesses. Please visit one of our lender partners to see what other loan options your business may qualify for.
At Janover Ventures, we appreciate the serious impact the COVID-19 coronavirus has had on businesses across the United States; including our own. Commercial real estate lending has tightened, and companies and investors of all kinds have fewer deals in the pipeline and less cash to spend. Small businesses across the country have been forced to shut their doors, sometimes permanently, while many multifamily tenants are struggling to pay rent.
While we’re not doctors and can’t say how or for how long COVID-19 will continue to affect us, we do believe that business owners (including real estate investors) should understand the relief options that the federal government has provided in recent weeks. Some of these programs include:
Paycheck Protection Program (PPP) loans via the expanded SBA 7(a) program
SBA Express Enhancements
IRS Filing Extensions
Economic Injury Disaster Loan (EIDL) Relief Advance
Fannie Mae® and Freddie Multifamily Forbearance options
Stimulus Checks (direct payments to taxpayers)
Many of these new COVID-19 relief programs are authorized and funded by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was unanimously passed by the U.S. Senate on March 25th, 2020, by the House of Representatives on May 27th, 2020 and signed into law by President Trump later that day.
In this guide, we’ll review several of the most important federal relief programs that can be utilized by small business owners and commercial real estate investors. Some programs, including EIDL Relief Advance, can also be used by individuals working as independent contractors. We strongly suggest that those interested in using these programs begin researching and applying to them as quickly as possible, as funds are limited.
The Small Business Administration and SBA Loan Requirements
It’s important to realize that most of these federal programs are offered through the U.S. Small Business Administration, or SBA, a United States government agency designed to help support small businesses. Several types of SBA loans are only designed for businesses located within federally designated disaster areas. However, potential borrowers should know that all U.S. states and territories are currently designated as federal disaster zones due to COVID-19, which means EIDL should be considered by most small business owners.
In addition, SBA loans are generally only available to qualified “small businesses.” In general, this means businesses with less than 500 employees and less than $7.5 million in average annual income. However, size rules vary by industry; companies in some industries are capped at less than 250 employees and under $750,000 in average annual income, while businesses in other sectors can qualify as long as they have less than 1,500 employees and less than $38.5 million in average annual income. Check out the SBA’s Table of Size Standards to see if your business is eligible.
Traditionally, only for-profit businesses were allowed to receive SBA funding but new COVID-19 regulations have temporarily voided this rule. Now, nonprofit organizations are also eligible for many SBA loan programs. Additionally, not all businesses are eligible; prohibited businesses include those involved in multi-level marketing, gambling, investing, lending, loan packaging or speculation. Other prohibited businesses include those involved in illegal activities or those in which the owner is currently on parole.
The Paycheck Protection Program Loan
The Paycheck Protection Program (PPP) loan is one of the most important components of the CARES Act. The program functions as a one-time, $349 billion expansion of the traditional SBA 7(a) loan program and designed to help small businesses maintain their workforce while coping with the impact of the COVID-19 pandemic. While PPP loans have significantly fewer barriers to entry than traditional SBA financing, they come with the stipulation that loans will be forgiven only if 100% of the company’s employees are kept on the payroll for at least eight weeks. Companies that have recently been forced to fire or furlough employees can also rapidly re-hire them using PPP funds.
In addition to funding a company’s payroll up to $100,000 per employee, PPP loan funds generally must be used for rent, utilities, healthcare continuation costs, or mortgage interest or interest on other business debts acquired prior to the coverage period. Loan proceeds can also be utilized to fund other employee benefits, such as paid time off and retirement plans. This program can offer funding in amounts up to $10 million (or 2.5x average monthly payroll, whichever is less).
Small businesses and sole proprietorships were permitted to begin applying for funds on April 3, while self-employed individuals and independent contractors can apply from April 10th. Click here for a sample application from the SBA.
Fannie Mae® and Freddie Mac® Multifamily Forbearance and Other Changes
For multifamily borrowers, the coming weeks present a unique challenge, as many borrowers may not be able to make their monthly mortgage payments. However, borrowers who have taken out multifamily financing with Fannie Mae or Freddie Mac might be able to get a forbearance from their lender lasting until August 31, 2020, provided that they were current on their loan as of February 1st of this year. Borrowers must show the lender documentation of their financial hardship, while agreeing to not evicting any tenants (including those involved in current eviction proceedings) for the duration of the forbearance period. Borrowers will be responsible for repaying missed payments over a set period of time, typically 12 months or less.
Fannie Mae borrowers may also want to refer any struggling tenants to their Disaster Response Network (DRN), which can help pair tenants with HUD-approved housing counselors, helping them create a financial plan and set benchmarks to facilitate a speedy recovery.
In addition to these forbearance policies, Fannie and Freddie have made several other COVID-19 related changes, including updating their property inspection policies and implementing stricter underwriting policies, such as requiring an additional 12 months of rent as a reserve for Freddie Mac Small Balance Loans. Freddie has also become stricter on cash-out refinances, requiring lower LTVs and higher DSCRs for borrowers who elect to take cash out.
HUD® Multifamily Forbearance and Updates
Since we’ve touched on COVID-19 relief for Fannie Mae and Freddie Mac apartment loans, it makes sense to discuss HUD®/FHA® multifamily loans as well. Unlike Fannie and Freddie, HUD doesn’t buy loans, it insures them. For this reason, it cannot directly offer forbearance to borrowers. However, most HUD loans are guaranteed by Ginnie Mae, which says it will help multifamily lenders it works with to offer forbearance to borrowers during the current disaster. HUD has also extended the deadline for submitting audited financial reports for current multifamily borrowers. Check out this HUD COVID-19 Guide for Multifamily Stakeholders to learn more.
Economic Injury Disaster Loan Emergency Advance
The SBA’s Economic Injury Disaster Loan (EIDL) program is designed to help support the recovery of small businesses impacted by a disaster. Currently, small business owners in all parts of the United States are potentially eligible for an Economic Injury Disaster Loan. EIDL-eligible borrowers are also permitted to apply for a loan advance up to $10,000, which does not need to be repaid.
Economic Injury Disaster Loans are issued in amounts up to $2 million. Interest rates are 3.75% for businesses and 2.75% for nonprofits, with an automatic 12-month deferment on repayment (though not interest). Loans through the EIDL program can have terms of up to 30 years.
SBA Express Bridge Loans
The Express Bridge Loan Pilot Program is designed to permit eligible small businesses to receive loans of up to $25,000 in as little as 45 days. Eligible borrowers must already have a business relationship with an SBA Express Lender. Cash-strapped small businesses currently waiting to determine the status of their Economic Injury Disaster Loan (EIDL) application might also be able to qualify for an Express Bridge Loan. If the borrower is granted an Economic Injury Disaster Loan, the Express Bridge Loan will need to be repaid (in all or part) by the EIDL loan proceeds.
SBA Loan Debt Relief
The impacts of COVID-19 have hit many small businesses hard, including many who already have financing from the SBA. To help support the business community, the SBA has announced that it will automatically pay the principal, interest and fees for loans issued through its 7(a), 504 and microloan programs for the next six months. The SBA has also said that it will automatically make the same payments for any 7(a), 504 and microloans provided before September 27, 2020. Certain other types of SBA loans may be eligible for deferred payments.
IRS Tax Relief and Extensions
On March 20th, 2020, the IRS announced that they would extend the deadline for tax return filing and payments due on April 15 to July 15. Eligible entities include individuals, corporations, companies, estates, trusts, and associations. For partnership and S-corporation returns, which were due on March 16, 2020, the new, extended tax deadline is Sept. 15, 2020. There are currently no limits on the size of a payment which can be deferred to the new deadlines. C-corporation income tax returns were originally due on July 15, 2020 for many C-corporations, while the new, extended deadline is Oct. 15, 2020.
Direct Payments (Stimulus Checks)
In addition to the programs mentioned above, direct payments, also referred to as “stimulus checks” or “rebates” will be provided to each taxpayer. Individuals will receive up to $1,200, while couples filing jointly may receive up to $2,400. These direct payments include $500 per child for those younger than 17. This payment is designed as an advance refundable tax credit.
Direct payments will be phased out based on a taxpayer’s adjusted gross income, with those receiving over the maximum amount ineligible to receive funds. The income range in which taxpayers are typically eligible to receive some, but not all of the full direct payment is detailed below:
Individual taxpayers: $75,000 to $99,000
Couples filing joint tax returns: $150,000 to $198,000
Heads of household: $112,500 to $146,500
Click here for a free calculator that can help you estimate your potential direct payment amount.
For most taxpayers, no additional action must be taken to receive the payment. In order to determine a taxpayer’s income, the IRS will use their 2019 tax return, or if unavailable, their 2018 return. To learn more, visit the IRS newsroom for a more detailed update.
The U.S. Small Business Administration (SBA): The SBA’s core COVID-19 page details nearly all relevant SBA loan programs for small businesses and independent contractors impacted by the coronavirus.
Intuit Aid Assist: Intuit, the financial software company behind products like TurboTax and Quickbooks, has created a quick and easy Aid Assist app, which allows you to fill out a questionnaire to learn which federal relief programs you might be eligible for.
The CCIM Institute: The CCIM Institute’s COVID-19 Resources and Guidance page provides information about CRE loan relief, guidance for tenant rent relief requests, and a variety of other guides intended to support commercial real estate investors and other CRE professionals.