Hop Law

UPDATED – SBA Loan Options for Breweries During the Coronavirus Outbreak

The Coronavirus pandemic has caused a profound and pervasive impact on almost every facet of daily life around the world. This impact is felt especially acutely by small businesses, including breweries, distilleries, and wineries. Over the course of just a few weeks, once busy taprooms have been completely emptied, distilleries have begun distilling hand sanitizer instead of spirits, and small businesses across the country are grappling with difficulties making payroll and paying rent.

In response to the pandemic, President Trump signed the CARES Act, a $2 trillion bipartisan economic relief plan, into law. The CARES Act, among other things, offers some relief to small businesses in this uncertain time by creating the Paycheck Protection Program, a $348 billion loan program designed to promote job retention and help small businesses cope with certain expenses. Under the program, eligible small businesses may apply for a loan of up to $10 million dollars, although the maximum each business may receive is based on its payroll costs. The interest rate on the loan was initially set at 0.5%, although it was later raised to 1% after requests from the banking industry. Under the CARES Act, the interest rate can be set as high as 4%. All loan payments are deferred for the first six months, and borrowers are eligible for loan forgiveness for the amounts spent over the eight weeks after receiving the loan on certain qualifying expenses, provided that borrowers do not reduce their number of full-time employees during that period.

If you believe that your brewery, winery, or distillery would benefit from a PPP loan, keep reading for a summary of who is eligible for the loan, how to apply, how to eventually seek forgiveness, and additional options for businesses that may be ineligible for a PPP loan or need a larger loan than those available under the program.

WHO QUALIFIES FOR A PPP LOAN?

Generally, small businesses with fewer than 500 employees and that were in business on or before February 15, 2020 are eligible for a PPP loan. However, certain businesses with more than 500 employees may still be eligible, as long as they meet the SBA’s size standards for those industries, including the alcoholic beverage industry. Therefore, to be eligible, breweries must have fewer than 1,250 employees, wineries must have fewer than 1,000 employees, and distilleries must have fewer than 1,000 employees. Beyond the size and time in business restrictions, businesses must also certify that the business has been economically affected by the Coronavirus crisis, or that economic uncertainty makes the loan necessary.

HOW DO I APPLY FOR A PPP LOAN?

Businesses can apply for a PPP loan through any existing SBA 7(a) lender, or participating federally insured banks, federally insured credit unions, and Farm Credit System institutions. Lenders may begin processing loan applications as soon as April 3, 2020. While the application period has officially begun, some banks are refusing to accept or process applications until they receive more detailed instruction from the Treasury Department on how to administer the loans, and the banks’ possible liability. As there are 30 million small businesses in the U.S., it will likely be beneficial to apply early on as the $348 billion allocated to the program may run out. Businesses should consider working with a bank they already have a relationship and accounts established with, as some banks have already issued notices that they will service existing
customers first.
To apply for a PPP loan, you will need to complete an application form, available here. You must show your lender proof that your company was in operation on February 15, 2020 and that you had employees you paid salaries and paid payroll taxes. Finally, you will need to show proof of your average monthly payroll costs in 2019 (or if your business is new, for the first two months of this year). You should review and begin completing the application form soon, as it requires several certifications from every individual that owns more than 20% of your business.

WHAT ARE THE TERMS OF PPP LOANS?

Eligible businesses can receive loans for up to two months of their average payroll costs from the last year, plus an additional 25% of that amount. That amount is subject to a $10 million cap, and payroll costs are capped at $100,000 per year, per employee. Any unforgiven portion of the loan will be due in two years, and there are no prepayment penalties or fees. Businesses do not have to pledge any collateral for these loans, and business owners do not need to personally guarantee the loan. Unlike other SBA loans, businesses do not have to try to obtain some or all of the loan funds from other sources. As mentioned above, the Treasury Department set the interest rate on these loans at 0.5%, although it is possible that this could change, as the statutory cap is 4%. All payments on the loan are deferred for six months, however interest will accrue over that period.

HOW DO I APPLY FOR PPP LOAN FORGIVENESS?

The SBA will fully forgive your PPP loan if your business keeps all employees on the payroll and the funds are used for payroll costs, mortgage interest, rent, and utilities within the 8-week period after the loan is made, with some caveats. First, at least 75% of the forgiven amount must be used for payroll. Additionally, if a business has already reduced staffing levels by the time it receives the loan, it must quickly rehire employees and maintain the staffing levels it had on February 15, 2020. Finally, the business must also maintain payroll amounts, meaning that it cannot decrease salaries and wages by more than 25% or any employee that made less than $100,000 in the previous year.
You will have to submit a request to the loan servicer to receive loan forgiveness, and provide documents that verify your number of full-time employees, pay rates for those employees, and documentation on any mortgage payments, rent payments, and utility obligations. You will have to certify that those documents are true and that you used the amount for which you are requesting forgiveness for to keep employees and make those eligible payments. The lender will make a decision on the forgiveness within 60 days. If you do not maintain staffing levels, decrease your payroll amounts, use the money for non-eligible expenses, or do not use the entire amount within the 8-weeks after receiving the loan, the amount eligible for forgiveness will decrease.

WHAT ARE OTHER SBA LOAN OPTIONS?

If your brewery, distillery, or winery is not eligible for a PPP loan, or if you need economic assistance beyond the amounts allowed under the PPP program, there are several other SBA loan options available. First, your business may be eligible for an Economic Injury Disaster Loan. Under the Economic Injury Disaster Loan program, the SBA ordinarily provides small businesses with working capital loans of up to $2 million in the aftermath of natural disasters, and it has expanded this program to cover the Coronavirus pandemic. The loans include an advance of up to $10,000, which does not have to be repaid and will be made available within three days of a successful application. The remainder of the loan, however, must be repaid. The application is available here.
Additionally, the Small Business Debt Relief program provides immediate relief for small businesses already making payments under non-disaster SBA loans, in particular 7(a), 504, and microloans. Under the program, the SBA will cover all payments on these loans, including principal, interest, and fees for six months. This program will also apply to new borrowers who take out loans within six months of the CARES Act being signed into law. This provides some short-term relief to businesses who wish to take out larger loans to cover their expenses and make up for lost revenues during this time, or businesses who are struggling to make payments under their existing loans.
Finally, the SBA offers Express Bridge Loans to small businesses that already have a relationship with an SBA Express Lender to access short-term loans of up to $25,000 with minimal paperwork. These loans are to be used to bridge the gap when applying for an Economic Injury Disaster Loan, and must be repaid in full or in part with proceeds from that loan. To apply for an Express Bridge Loan, businesses should contact their SBA Express Lender.
Note: This article was updated on April 3 to express the increased interest rate on PPP loans and difficulty banks are facing with the program rollout.