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CARES Act - SBA Loan Programs and Related Benefits

April 02, 2020

CARES Act - SBA Loan Programs and Related Benefits

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law March 27, 2020. Below, we have outlined two of the Small Business Administration (SBA) programs created by the CARES Act, which could have a significant impact on your business.  While we focus on a continued review of the CARES Act with plans to provide additional updates, as warranted, our communications are intended to inform and assure you that we are available to provide any assistance you may need during this time of uncertainty and change.  

Economic Injury Disaster Loans (EIDL) and Emergency Economic Injury Grants (EEIG) 

  • EIDLs are low interest loans up to $2,000,000 with potential principal and interest deferment (at the SBA’s discretion).
  • Term of loan can be up to 30 years.
  • Interest rate of 3.75% (for profits) and 2.75% (for eligible non-profits).
  • EIDLs are available to small businesses, co-ops, employee owned businesses, independent contractors, sole proprietorships, small agriculture co-ops, tribal businesses and most private non-profits.
  • CARES Act provides for an immediate $10,000 grant (EEIG) when applying for and EIDL. Applicants are not required to repay the grant, even if denied the loan.  
  • It is possible to have both an EIDL and PPP loan but they cannot be used for the same costs.
  • EIDLs may be refinanced into a PPP loan (defined below). 

Paycheck Protection Program (PPP) 

  • Provides a forgivable loan equal to 250% of your average monthly payroll costs, excluding any employee/owner compensation over $100,000.  In no case shall the loan amount exceed $10,000,000.
  • Average monthly payroll is based on the 1-year period before the date on which the loan is made. If not in business during the prior year period, 2/15/2019 through 6/30/2019, the average is determined using the period 1/1/2020 through 2/29/2020.  Seasonal employers use the 12-week period beginning 2/15/2019 or, upon election, use the period 3/1/2019 through 6/30/2019.
  • Generally available to small businesses (i.e., fewer than 500 employees) including individuals who operate a sole proprietorship or as an independent contractor.
  • 501(c)(3) – public charities and 501(c)(19) – veterans’ organizations may participate.
  • Any business concern that employs more than 500 total employees, but not more than 500 employees per physical location of the business concern and that is assigned a NAICS code beginning with 72, can have the affiliation rules waived. 
  • Affiliation rules are also waived for any business concern operating as a franchise that is assigned a franchise identifier code by the Administration, and company that receives funding through a Small Business Investment Company. 
  • Loan forgiveness is determined based on the “use” of the loan proceeds during the 8-week period beginning on the loan date (the “covered period”).
  • Qualifying costs incurred during the covered period include:
  • Payroll
  • Rent (on any lease agreement entered into before 2/15/2020)
  • Interest on a Mortgage obligation (incurred before 2/15/2020)
  • Utilities-electric, gas, water, transportation, telephone or internet (which began before 2/15/2020) 
  • Loan forgiveness will be reduced proportionately to a workforce reduction, comparing the covered period monthly average to, at the election of the employer, the monthly average for the period 2/15/2019 to 6/30/2019 or the period 1/1/2020 to 2/29/2020.
  • Loan forgiveness will be reduced to the extent of any salary reduction to an employee that is in excess of 25% of the salary and wages for the most recent full quarter before the covered period.
  • Headcount and salary reductions remedied no later than June 30, 2020, are exempt from impacting the loan forgiveness amount.
  • Any amount not forgiven may be financed for a maximum of 10 years and an interest rate not to exceed 4%.
  • Payment is deferred for no less than 6 months and no more than 1 year.
  • Any EEIG received related to a refinanced EIDL will reduce the any PPP loan forgiveness.
  • Borrower Requirements - an eligible recipient applying for a covered loan shall make a good faith certification:
  • that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient;
  • acknowledging that funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments;
  • that the eligible recipient does not have an application pending for a loan under this Section 7(a) of the Small Business Act for the same purpose and duplicative of amounts applied for or received under a covered loan; and
  • during the period beginning on February 15, 2020 and ending on December 31, 2020, that the eligible recipient has not received amounts under Section 7(a) of the Small Business Act for the same purpose and duplicative of amounts applied for or received under a covered loan. 

If you have questions related to how these SBA programs may help your business during these challenging times or you would like assistance quantifying what these programs could mean for your business, please do not hesitate to contact your service team.