CASH FLOW, DEBT AND RENT: CARES Act & Financial Resources
COVID-19 CASH FLOW AND LOAN FORGIVENESS
Through an ongoing series of blogs and sharing of resources, articles and examples, ISBN members continue to connect and support each other and the professional beauty industry through the COVID-19 crisis and shutdown.
In this segment, ISBN shares an overview from a Small Business Association lending group that frames key points of the “Business Loan Interruption Program” segment of the recently passed Coronavirus Relief Bill, or CARES Act.
“This bill has a details to be ironed out, so these pointers comes with caveats,” says ISBN Executive Director Valorie Tate. But it will give salon business leaders some context and help shape questions and what they will want to explore and confirm with their legal and financial advisors as they review next steps.
Business Loan Interruption Program: Overview and Key Points (as of 3/26/20):
- You can obtain these forgivable loans through existing lenders for the Small Business Administration’s 7(a) program: This legislation creates a Paycheck Protection Program with loans originated through existing SBA 7(a) lenders. This includes Wells Fargo, Citi, Bank of America and numerous other major lenders/banks.
- The loans are 100% guaranteed by the government through Dec 31st, 2020; no personal guarantee or collateral is required for the loan. We would advise consulting your own preferred lender now to confirm that they originate 7(a) loans and to let the lender know you plan to apply for one under the Paycheck Protection Program. Note that the Secretary is given authority to authorize additional lenders to participants.
- These loans are available to businesses with not more than 500 employees, (with exceptions made for some classifications of industries, including hotels and restaurants, who may have up to 500 employees per location.
- The maximum loan amount is $10 million: The bill text defines the maximum loan amount as the lesser of $10 million or the average total monthly payments for payroll costs (salaries, leave, insurance, state/local tax, payments to certain contractors — excluding compensation per employee of more than $100k) multiplied by 2.5. Tip: estimate your relevant loan amount now so you’re able to provide the necessary paperwork to your bank.
- The loan process is designed to be simple and doesn’t require you to extensively prove specific hardship. The bill text requires only a “good faith” certification that the economic conditions make the loan necessary and that you will use the funds to “retain workers and maintain payroll or make mortgage payments, lease payments and utility payments.”
- The loans can be used broadly for business expenses. The loan can be used for payroll costs, benefit costs, salaries and commissions, mortgage interest (but not principal), rent, utilities, and interest on debt incurred before reference period (beginning Feb 15th).
- Subject to certain limitations, payments made under the loan during the 8-week period after origination are forgivable. Forgivable costs include money spent on eligible payroll costs (not including comp above $100k in wages), mortgage interest, rent or utilities. The amount forgiven cannot exceed the principal of the loan.
- The amount of loan forgiveness is reduced based on reductions in staffing or employee compensation. Employers have the option of comparing full-time equivalent staffing to a reference period (February 15 to June 30) 2019, or the period January 1 to February 29, 2020, as a comparison point for any staffing reduction. A reduction in total salary/wages of more than 25 percent (among those earning $100,000 or less) would also be subtracted from the forgiveness amount.
- There is an exemption in the ‘forgiveness” section for re-hiring employees you recently laid off. The legislation includes a provision such that employers are not penalized for compensation or staffing reductions that occurred between February 1st, 2020, and 30 days from the bill’s enactment, so long as these reductions are reversed by June 30th, 2020.
Tune In and Talk Through the CARES Act
As part of ISBN’s ongoing support of members during the COVID-19 shutdown and throughout the recovery process, Sport Clips President and COO, Edward Logan will join fellow board member Frank Zona, Co-Owner of Zona Professional and other industry leaders on a real-time discussion of financial actions and priorities, through a webinar with media partner SALON TODAY on “Staying Strong Through Salon Shutdowns.” The free online session is tentatively scheduled for Monday, April 6 at 11 am CST/1pm PST. Expect meaningful discussion and analysis of what the new CARES Act legislation and relief bill means to salon, spa and barber businesses.
Watch for more details and an invitation to join the webinar via ISBN email newsletters, posts on ISBN’s social media and on salonspanetwork.org. This session is a follow-up to the industry-wide COVID-19 crisis webinar ISBN co-hosted on March 18, available for replay here.
Helpful Explanation of CARES Act
Great Clips Vice Chair Rhoda Olsen shared this resource from local attorneys that is a useful explanation and breakdown.
Find Support, Share Your Resources
Watch for more COVID-19-related business management and recovery planning tips and tools from ISBN members on salonspanetwork.org and check out the Business Planning for COVID-19 downloadable documents section now.
If you have content, documents or ideas to share, please contact ISBN Executive Director Valorie Tate at email@example.com.