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7 Questions About PPP and EIDL the SBA and Treasury Need to Answer ASAP

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When it comes to Economic Injury Disaster (EIDL) loans and grants, and Paycheck Protection Program (PPP) loans, business owners have questions. Lots of questions. At Nav, we’ve received thousands of them via our COVID-19 Resource Center blog articles, SBA CARES Act Insights Hub on Facebook and through our Lending Specialists who are helping small business owners explore financing options. 

Treasury and the SBA have been slow in providing guidance for some key questions. And some remain unanswered still. But business owners can’t wait as missteps— even if they stem from lack of guidance— could prove costly. 

Here are 7 pressing questions small business owners need answered ASAP: 

1. What Is the Status of EIDL Applications?

Congress recently authorized an additional $60 billion in funding for Economic Injury Disaster Loans (EIDL), with $10 billion allocated for the grant/advance and $50 billion for loans, to catch up with the backlog of applications.  

But business owners who have applied for Economic Injury Disaster Loans and need that funding to pay essential bills are in the dark about the status of their applications. 

Just spoke with a (SBA) representative by phone (1-800-659-2955) and was told that there is no possible way to check my current status of the EIDL Emergency Advance grant. I guess my only option is to wait and see what happens.”

As part of EIDL, the CARES Act mandated the SBA provide an advance of “not more than $10,000” three days after an EIDL application but that did not occur. Some business owners have begun to receive advances — often weeks after they applied—  but these advances come with no information on the status of their loan application. And since the advance has since been limited to $1000 per employee, many businesses are anxiously awaiting loans. 

While we’ve seen numerous updates from the SBA on PPP loans processed, the SBA doesn’t appear to have been as transparent about EIDLs. How deep is the backlog? How long is funding taking on average between application and the advance/grant, and then the loan? If the program is administered first-come, first-served could disclosing funding by application number help business owners see where they are in line? 

Some business owners are barely hanging on with no idea how long it will take to get essential funding. They deserve at least some level of transparency. 

2. How Do PPP and EIDL Work Together? 

Many business owners have been encouraged by the SBA and Small Business Development Centers (SBDCs) to apply for both EIDL and PPP if eligible. But what’s not clear is exactly how those programs work in concert with each other. 

“We received both PPP and an EIDL advance. The PPP must be used within 8 weeks to be forgivable. Can I use the PPP to cover payroll these next 8 weeks, and then use the EIDL advance after that until it runs out, understanding that I’ll need to repay the $10K “overlap” in the future?”

The CARES Act states: 

“Section 1102 (a)(2)(3) (Q) “DUPLICATION.—Nothing in this paragraph shall prohibit a recipient of an economic injury disaster loan made under subsection (b)(2) during the period beginning on January 31, 2020 and ending on the date on which covered loans are made available that is for a purpose other than paying payroll costs and other obligations described in subparagraph (F) from receiving assistance under this paragraph.”

What about other time periods? Could a business owner use EIDL funds to cover payroll before and after the 8 weeks of payroll after it gets the loan (the time period associated with forgiveness) as long as it doesn’t fall in that window? For businesses who need payroll help for longer than 8 weeks it’s a valid question. It’s particularly important for self-employed individuals who may not have significant working capital needs outside of payroll. 

3. Does an EIDL Grant Prevent an Employer from Taking The Payroll Tax Credit? 

The CARES Act creates an employee retention payroll tax credit. Employers whose operations were fully or partially suspended due to government orders, or who experienced a major decline in receipts may be eligible for a employee retention tax credit against Social Security wages for up to 50% of $10,000 in qualified wages (including health plan expenses) paid after March 12, 2020 and before January 1, 2021. 

“Also, can I do BOTH the $10,000 grant for EIDL and also the 50% Payroll Tax Credit? I know you can’t do both PPP and the tax credit, but not sure on doing both EIDL $10k grant and also 50% payroll tax credit. Because if I can do both of those, that’s $5k free money for the Payroll Tax Credit and $10k free money for the EIDL grant, and that would be $15k free money if I can do both.”

The IRS is clear that you can’t get PPP and take the employee retention tax credit. But what about the EIDL grant? It’s not clear. Presumably those funds could be used for non payroll tax purposes and therefore not jeopardize the ability to get both. But until Treasury, the SBA or the IRS comes out with guidance, who knows for sure? 

4. Why Are EIDL Grants Being Turned Down Due to Credit? 

The EIDL is a low-interest loan that business owners can use to help meet working capital needs while they recover from a disaster. These loans are ultimately funded by taxpayers, though, and the SBA requires acceptable credit to qualify. 

The CARES Act also created an EIDL advance (or “grant”) of “no more than $10,000” that does not have to be repaid. Section 1110 of the Act states: 

An applicant shall not be required to repay any amounts of an advance provided under this subsection, even if subsequently denied a loan.

Business owners—and we—were shocked when applicants were denied the grant due to their credit. If the grant doesn’t have to be repaid why would credit be a factor? 

“The EIDL loan was declined and I never received the $1,000 grant either. The rejection letter said that my credit score was too low to get approved for the loan. It’s not really bad credit but more like lack of credit I am guessing. I have no credit cards or loans. Car is paid cash and house is rented. I am liquid everything because I don’t like having debt.”

I have lost some business from the shutdown and expect I will probably lose more soon.

An explanation on why grants are being declined due to credit is needed. 

5. Are EIDL Grants Taxable? 

The CARES Act clearly states that forgiven PPP loans don’t have to be included in gross income for tax purposes. In Section 1102 it states: “Taxability.—For purposes of the Internal Revenue Code of 1986, any amount which (but for this subsection) would be includible in gross income of the eligible recipient by reason of forgiveness described in subsection (b) shall be excluded from gross income.”

But what about the EIDL grants? This reader isn’t the only one who has asked us that question: 

Are EIDL GRANTS taxable? 

IRS guidance dating back to April 2013 would seem to indicate they are: 

Q:  If a taxpayer secures a low-interest disaster loan from the Small Business Administration what effect will it have on calculating a casualty loss?

A: A low-interest disaster loan from the Small Business Administration loan must be repaid and therefore does not reduce the casualty loss amount.  However, amounts of the loan, if any, which are cancelled or forgiven are included in gross income in the year of cancellation.  Additionally, insurance or other reimbursements received and not required to be repaid will reduce the casualty loss.

Is that the intent of Congress in this case? Taxpayers need to know before the quarterly tax payment they must calculate after they get the grant becomes due. 

6. How Do the Rehiring Provisions for PPP Work?

The main appeal of PPP is the ability to obtain forgiveness of the loan if used for the proper purposes. However, we’ve discussed the fact that forgiveness provisions are confusing and appear to be contradictory

“We had a forced closure, so laid off everyone, and most are now receiving unemployment insurance payments plus the federal supplement of $600. One of our employees was on leave at the time and can’t return because of family need, and now, travel restrictions. Must we re-hire her when we receive our loan (which is about to happen)? Our payroll calculations for the loan included her payroll information. Are we allowed NOT to count an employee? We want her back, but we don’t know when she can return and we don’t want to cut her off from unemployment insurance either. Re-hire and then, if necessary, lay off again? Another employee, a part-timer, prefers to retain her unemployment insurance payment until we re-open. Can we also allow that without risking loan forgiveness?”

The CARES Act appears to state that if, during the period of February 15, 2020 and April 26, 2020 (30 days after the CARES Act became law) the business reduces the number of full-time equivalent employees or salaries or wages as compared to February 15, 2020 and then eliminates the reduction by June 30, 2020 then there is an exemption to the reduction. But it’s unclear how that works in conjunction with the other requirements that seem to indicate forgiveness is based on how funds are spent the eight weeks after loan proceeds are disbursed. 

Plus all those other questions about employees who can’t or won’t come back to work. 

7. Can You Collect Unemployment Before or After PPP? 

Self employed individuals may be eligible for Pandemic Unemployment Assistance. They may also apply for PPP. But can they apply for both? And how do the two work together? 

“I am self-employed with an S Corp. I have 2 employees. I have been waiting for a PPP loan to get approved and it still hasn’t. Am I able to collect unemployment until my loan is granted? I have read that we are unable to file for both unemployment and a PPP loan. My fear is that I won’t see any money from PPP and lose out on potential unemployment benefits. I pay myself annually $96,000. We have been shut down since March 19 and I’m unable to collect any money from my business or government.”

The Interim Final Rule published in the Federal Register, Vol. 85, No. 76, Monday, April 20, 2020 states: 

In addition, you should be aware that participation in the PPP may affect your eligibility for state-administered unemployment compensation or unemployment assistance programs, including the programs authorized by Title II, Subtitle

A of the CARES Act, or CARES Act Employee Retention Credits.” 

But that’s the extent of this ominous warning. No specific guidance is given as to exactly how it may affect eligibility. What if a borrower decides to pursue the following strategy? Is that permitted? 

“My business only got $6,300 in funds. I’m the owner and the only employee on payroll. My business it’s been close for the last 2 months so I’m collecting unemployment. I owe rent and utilities which total close to the 6k. Can I use those funds to pay rent and utilities only ? I know I will have to pay it back but I just want to make sure I won’t have any problem if I don’t use the funds for payroll.”

The intention of these programs is to try to help business owners survive this crisis and resume their businesses successfully. It shouldn’t create more confusion and chaos. They shouldn’t have to hire lawyers to figure this out. (Many lawyers won’t advise on these questions without further guidance anyway.) 

If we really support small business owners as we say we do, then let’s get them answers to these and other important questions about COVID relief loans so they can get back to business. 

This article was originally written on May 1, 2020.

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Bad Credit

Home Equity Loan With Bad Credit: Can It Be Done?

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Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”

Home equity loans let you turn your equity into cash, which you can use to pay for home improvements, unexpected medical expenses, or any other bills you might be facing.

Generally, lenders require at least a 620 credit score to qualify for a home equity loan. If your score isn’t quite there yet, though, you still have options.

Here’s how you may be able to get a home equity loan with bad credit:

  1. Check your credit and try to improve it
  2. Find out your debt-to-income ratio
  3. Find out how much equity you have
  4. Think about bringing on a cosigner
  5. Shop around for the best rates
  6. Consider alternatives to bad credit home equity loans

1. Check your credit and try to improve it

To start, head to AnnualCreditReport.com and pull your credit. You get one free report from all three credit bureaus per year.

Once you have your credit report, check it for errors and evidence of identity theft, such as accounts you don’t recognize and credit cards that aren’t yours. Reporting these to the credit bureau can help improve your score. So can taking these steps:

  • Pay all your bills on time: Payment history — or your track record of payments — accounts for 35% of your score, so make it a point to pay all of your bills on time, every time.
  • Pay down your debts: Lenders want to see a credit utilization rate of 30% or less — meaning your balances account for 30% or less than your total available credit.
  • Keep credit cards open: How long your accounts have been open impacts 15% of your credit score, so avoid closing accounts — even once you’ve paid them off.
  • Avoid applying for new cards: This will result in hard credit inquiries, which can hurt your score.

Learn More: How Your Credit Score Impacts Mortgage Rates

2. Find out your debt-to-income ratio

Lenders will also consider your debt-to-income ratio (DTI) when you apply for a home equity loan. This indicates how much of your monthly income goes toward paying off debt.

How to calculate DTI: Add up your monthly bills and loan/credit card payments, and divide the total by your monthly income. Multiply that amount by 100.

For example, if you have $2,000 in debt payments and make $6,000 per month, your DTI would be 33% ($2,000 / $6,000 x 100).

Most lenders want a DTI of 43% or lower. A low DTI can help improve your chances of getting a loan, especially if you have a lower credit score, since it indicates less risk for the borrower.

3. Find out how much equity you have

How much equity you have in your home, as well as your loan-to-value ratio, will determine whether you qualify for a home equity loan — and how much you can borrow. To find out yours, you’ll need to get an appraisal, which is a professional evaluation of your home’s value. The national average cost of a home appraisal is $400, according to home remodeling site Fixr.

Once the appraisal is finished, you can calculate your loan-to-value ratio by dividing your outstanding mortgage loan balance by your home’s value.

For example: If you have $100,000 remaining on your home, and the appraisal determines it’s worth $200,000, then you have an LTV of 50% ($100,000 / $200,000). This also means you have 50% equity in the home.

Most lenders will only allow you to have a combined LTV of 85% — meaning your existing loan, plus your new home equity loan can’t equal more than 85% of your home’s value.

In this example, you’d be able to borrow $170,000 (85% of $200,000) across both your initial mortgage loan and your new home equity loan. Since your existing loan still has $100,000 on it, that’d mean you could take out a home equity loan of up to $70,000.

4. Think about bringing on a cosigner

Bringing in a family member or friend with excellent credit to cosign your bad credit loan can help your case, too. If you do go this route, make sure they understand what it means for their finances. Though you may not intend for them to make payments, they’re just as responsible for the loan as you.

Tip: If you fail to repay the loan as agreed, it could hurt the other individual’s credit score or result in collections against both of you. Make sure you’re upfront and transparent about what cosigning your loan may mean for them.

5. Shop around for the best rates

A lower credit score will typically mean a higher interest rate, so it’s incredibly important you shop around and compare your options before moving forward. Get rate quotes from at least three to five lenders, and make sure to compare each loan estimate line by line, as fees and closing costs can vary, too.

Credible makes comparing rates easy. While Credible doesn’t offer rates for home equity loans, you can get quotes for a cash-out refinance — another strategy for tapping your home equity. Get prequalified in just three minutes.

Get the cash you need and the rate you deserve

  • Compare lenders
  • Get cash out to pay off high-interest debt
  • Prequalify in just 3 minutes

Find My Loan
No annoying calls or emails from lenders!

6. Consider alternatives to bad credit home equity loans

A bad credit score can make it hard to get a home equity loan — especially one with a low interest rate. If you’re finding it difficult to qualify for an affordable one, you might consider one of these alternatives:

Cash-out refinance

Cash-out refinances replace your existing mortgage loan with a new, higher balance one. You then get the difference between the two balances in cash.

Find Out: Credit Score Needed to Refinance Your Home

Personal loans

Personal loans offer fast funding, and you don’t need collateral either. Rates can be a bit higher than on home equity loans and refinances, though, so it’s even more important to shop around. A tool like Credible can help here.

Check Out: Home Equity Loan or Personal Loan: How to Choose the Best Option

Compare multiple lenders

If you have bad credit, there are still ways to tap your home equity or borrow cash if you need it. Head to Credible to see what personal loan options and mortgage refinance rates you might qualify for. With Credible, you can easily compare prequalified rates from all of our partner lenders without leaving our platform.

About the author

Aly J. Yale

Aly J. Yale

Aly J. Yale is a mortgage and real estate authority and a contributor to Credible. Her work has appeared in Forbes, Fox Business, The Motley Fool, Bankrate, The Balance, and more.

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A Look Back At Housing 2020: Rental Housing Gets Riskier

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According to the American Housing Survey cited in a recent article, there are about 48 million rental housing units in the United States ranging from single-family homes to large multifamily apartment complexes. Of those 48 million units about 23 million are owned by individuals, according to a recent Rental Housing Finance Survey; that’s more than half of the occupied units in the country. Yet private rental housing providers have been under relentless attack in recent years increasing risks and costs. This has worsened in 2020 as I have pointed out. More risk means fewer housing units and higher prices, not a good outlook for the future.

Any business based on renting assets is based on risk. Think about the last time you went bowling. When you rent the shoes, the person behind the counter often will hold a driver’s license? Why? It’s a way of offsetting the risk that you’ll go home with the shoes either on purpose or accidentally. Nobody wants to deal with a lost driver’s license. Offsetting this risk has absolutely nothing to do with you or your trustworthiness; it is uniformly applied and routine.

Housing providers have to similarly offset the risk of allowing a stranger occupy their private property. There are several ways of doing this, including using credit checks. But lately, politicians are beginning to eliminate the credit check from the tools that housing providers can use to offset risk. Minneapolis for example has eliminated credit checks arguing that they are a “barrier” to housing.

Is race a factor in bad credit and thus a barrier to people of color to get housing? The fact is, yes, African American people have more credit issues. But would eliminating credit checks help them? The answer is, “No.”

An article in the Washington Post, “Credit scores are supposed to be race-neutral. That’s impossible,” is emblematic of how this issue plays among the public and policy makers. The author says two contradictory things. First,

“This would lead one to think that credit-score calculations can’t be biased. But factors that are included or excluded in the algorithms used to create a credit score can have the same effect as lending decisions made by prejudiced White loan officers.”

Then she writes,

“One quick way to impact your credit history is a court-ordered judgment. And Black borrowers are more likely to fare badly when taken to court by their creditors. Debt-collection lawsuits that end in default judgments also disproportionately go against Blacks, according to a 2020 Pew Charitable Trusts report.”

Logically, the right way to state this is that credit measures are biased against people who have default judgments against them, and African Americans have higher rates of defaults. Then the next question would be, “Why?” The most obvious answer is the right one, poverty is disproportionately concentrated among people of color.

But eliminating credit checks for housing won’t help that problem. If a housing provider is unable to evaluate risk based on past financial performance her only option will be to raise rents and deposit amounts in case there is a problem; that extra cash would provide a buffer if a resident stops paying rent. This won’t help anyone with less money. What’s the response to that? Ban rent increases by imposing rent control! That’s a bad idea too and won’t help either.

The answer is to figure out how people who have less money and therefore have more issues making ends meet can solve that problem and improve their credit scores. The author of the Washington Post article makes a sensible suggestion: include steady rent payments in credit scores. Some housing providers do, and it’s a great idea. But it is a positive one that actually helps the family; banning quantitative measures of past financial performance doesn’t.

The danger that unfolded in 2020 is that justifiable outrage about racism could lead to interventions that don’t address poverty and it’s negative consequences like default judgments but elimination of accepted measures of those consequences. Eliminating the evidence of poverty – struggling to pay bills – doesn’t help pay the bills! At best, these kinds of measures sweep the problem under the rug ensuring higher rents and making housing a risky business only big corporations will be able to do.

The answer is to address the broader underlying issues of poverty and increasing housing production. When there is more supply of housing providers compete with providers for residents and will be forced to bargain with potential residents, even those with dings or dents or completely destroyed credit. Housing abundance solves a housing problem while eliminating measure of risk only makes that risk higher and actually creates a housing problem.

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Can My Cosigner Take My Car?

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Cosigners don’t get any rights to the vehicle they signed the loan for. However, if the cosigner is trying to take your car, it may be time to take some action.

Cosigners and Ownership

Can My Cosigner Take My Car?Cosigners can’t take the vehicle they cosigned for because their name isn’t listed on the title. A cosigner isn’t responsible for making the monthly payments, maintaining car insurance, or really anything else. Cosigners simply lend you their good credit score to help you get approved for the auto loan, and if you can’t make payments, the lender can require them to pick up the slack.

Since you’re the primary borrower on the vehicle and your name is listed on the car’s title, you have ownership rights. Your cosigner can’t come to your residence and take possession of the vehicle – even if they’re the one making the car payments right now.

If you do default on the loan and the vehicle is repossessed, the cosigner still can’t take the car.

But My Cosigner Did Take My Car!

If your cosigner did somehow take your keys and your vehicle without permission, it’s considered theft. If you want to take action, you can report the car as stolen.

However, a better first step is probably contacting the cosigner and letting them know that they don’t have any ownership rights (if you want to maintain a relationship with them). You can ask them to return the vehicle and explain that their name isn’t on the title.

Removing a Cosigner From a Car Loan

If things are dicey with your cosigner, then it may be time to consider removing them from the auto loan. The easiest way to remove a cosigner is by refinancing.

Refinancing is when you replace your current loan with another one. You can work with your current lender or another one, but most borrowers look for another lender to refinance with.

You don’t need a perfect credit score to refinance your car loan – it just has to be good or better than it was when you first got the loan. Another common requirement of refinancing is that you’ve had the loan for at least one year.

Other common requirements for refinancing are:

  • You’ve stayed current on payments throughout the loan
  • You have equity or your loan balance is equal to the vehicle’s value
  • Your car has less than 100,000 miles and is less than 10 years old

Most borrowers usually refinance to lower their loan payments. Since you’re replacing your current auto loan with another one, many borrowers try to qualify for lower interest rates or extend their loan to lower their payments. If your credit score has improved, you may even be able to get a better interest rate and remove your cosigner!

Can’t Refinance to Remove the Cosigner?

Refinancing isn’t in the cards for everyone. However, another efficient way to remove a cosigner is by selling the car. Cosigners don’t have to be present at the sale of the vehicle, since they don’t have to sign the title to transfer ownership.

If you sell the car and get an offer large enough to cover the entire balance of your loan, you and the cosigner can walk away from the auto loan scot-free.

However, many borrowers need cosigners because their credit score isn’t the best. If you want to sell your vehicle to remove your cosigner, but you’re worried you can’t get a car loan by yourself, consider a subprime auto loan for your next vehicle.

Bad Credit Auto Loans

Since many traditional car lenders don’t work with borrowers who have poor credit histories or lower credit scores, they often ask them to bring a cosigner. But what if you don’t want a cosigner (or can’t get one) on your next auto loan? Enter subprime car loans.

Subprime lenders are teamed up with special finance dealerships, and they operate remotely. When you apply for financing with a special finance dealer, you work with the special finance manager who acts as the middleman between you and the lender.

You need documents to prove you’re ready to take on an auto loan – typical things like check stubs, proof of residency, valid driver’s license, a down payment, and other assorted items depending on your credit situation. If you qualify, the lender determines what your maximum car payment can be, and you choose a vehicle you qualify for from there.

What sets subprime auto loans apart from traditional car loans is that they assist borrowers in tough credit situations and offer the opportunity for credit repair. Some in-house financing dealerships that don’t check credit reports don’t report their auto loans, which means your timely payments don’t improve your credit score.

Finding a Car Dealership Near You

The best way to improve your credit score is by paying all your bills on time. Payment history is the most influential piece of the credit score pie. There are many lenders willing to work with bad credit borrowers, you just have to know where to look!

Here at Auto Credit Express, we’ve already done the searching, and we’ve created a nationwide network of dealers that are signed up with subprime lenders. Get matched to a dealership in your area, with no cost and no obligation, by filling out our car loan request form.

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