The passing of the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020 provided support for local businesses through Title 1: “Keeping American Workers Paid and Employed.” The Brewers Association held a webinar summarizing the legislation and provided guidance to brewers on how to navigate through these turbulent times. (The webinar recording and slides are available, here.)
The goal of this “stimulus package” is to provide much needed support to local businesses through the Paycheck Protection Program (PPP) and various bridge loans overseen through the Small Business Administration (SBA). This includes the 7(a) loan program, loan forgiveness, express bridge loans, and economic injury disaster loans (EIDL). The key points are summarized below. Thank you to the Brewers Association for hosting the webinar and to James Kim of McDermott Will & Emery for sharing all of this critical information.
1. The current situation is unprecedented and fluid. The SBA loan application has been sped up, encouraging brewers and other small businesses to get their applications in. This is a rapidly evolving situation, and it will be monitored closely over the next few weeks. The webinar attendees were also warned of the level of incomplete information floating around (with respect to the exact details and language of the bill), as multiple incomplete versions of the act are available online. For brewers, this means your best source of information is through those providing direct support to your brewery. Reach out to the SBA lenders; they are there to help.
2. Calculate your monthly payroll costs. This is the most important piece of information, as it is the baseline for a brewer’s 7(a) loan. The potential loan is of the amount 2.5 times your monthly payroll cost, taken over a 12-month historical average. Below is the legal definition of payroll costs:
“Payroll costs” are a defined term in the law, and include payments of compensation for salary, wage or commission; cash tip or equivalent; payments for vacation, parental, family, medical or sick leave; payments required for group health benefits, including insurance premiums; and payment of state and local tax assessed on compensation of employees.”
There are certain restrictions on payroll cost, such as maximum salaries ($100,000), maximum number of employees (for businesses qualifying as breweries: 1,250 employees), etc.
3. Support is still available for newly established breweries and businesses. The payroll costs are based on a 12-month historical average for an established business. The guidelines are modified for businesses less than one year old. As long as you were in operation on February 15, 2020, you are eligible. Again, contact an SBA lender for specific guidance.
4. The loan can cover a very specific list of expenses; and not all these expenses are eligible for loan forgiveness. Expenses a brewer can use a loan for include: payroll costs, group health care benefits, rent, utility bills, interest payments on mortgages, etc. The “borrowers are eligible for loan forgiveness equal to the expense incurred for the eight-week period after the origination date of the loan based on payroll, mortgage interest, rent, and utilities.” However, for example, health care benefits are not eligible for loan forgiveness.
5. The loan is capped at 4% interest and will not penalize brewers as long as they rehire workers. The portion of the loans that are not eligible for forgiveness have a maximum of interest rate of 4% over 10 years. Also, brewers and other businesses will not face reduced loan forgiveness as long as any laid-off workers are rehired/restored pay before June 30, 2020 – greatly incentivizing the goal of keeping American workers paid and employed.
6. Tradeoff between 7(a) loan and EIDL: One of the first questions asked by the brewers was the tradeoff between the various loan structures. James Kim put it simply: EIDL for speed; 7(a) for forgiveness. If any bills are of urgent – meaning within days – then the EIDL can help with that, but these are non-forgivable. The 7(a) provides loan forgiveness but might take a few more days to process the application and receive the full aid. However, brewers can apply for both. The size of the received EIDL would simply be subtracted from the size of the 7(a) loan you are eligible for.
Thank you to the Brewers Association, and especially to James Kim, for hosting this webinar and for sharing this very helpful information. The only way to weather this storm is to support one another, continue to innovate and find creative outlets, and share our ideas. Together, the industry will push through these tough times and bounce back stronger than ever.
Photo credits: CraftBeer.com