The Coronavirus Aid, Relief, and Economic Security (CARES) Act, calls on the Small Business Administration to back loans mainly through its 7(a) loan program, which offers loans to eligible small businesses. This is in addition to the stimulus law passed on March 6, dubbed the Coronavirus Preparedness and Response Supplemental Appropriations Act which expanded the criteria for businesses to qualify for loans granted under the SBA's Economic Injury Disaster Loan Program. Below are summaries and links about both programs.
SBA 7(a) Program Summary
Summarized by the U.S. CHAMBER OF COMMERCE
The CARES Act allocated $350 billion to help small businesses keep workers employed amid the pandemic and economic downturn. Known as the Paycheck Protection Program, the initiative provides 100% federally guaranteed loans to small businesses.
Importantly, these loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward.
The administration soon will release more details including the list of lenders offering loans under the program. In the meantime, the U.S. Chamber of Commerce has issued this guide to help small businesses and self-employed individuals.
Am I eligible?
You are eligible if you are:
In addition, some special rules may make you eligible:
What will lenders be looking for?
In evaluating eligibility, lenders are directed to consider whether the borrower was in operation before February 15, 2020 and had employees for whom they paid salaries and payroll taxes or paid independent contractors.
Lenders will also ask you for a good faith certification that:
How much can I borrow?
Loans can be up to 2.5 x the borrower’s average monthly payroll costs, not to exceed $10 million.
Included Payroll Costs
For Employers: The sum of payments of any compensation with respect to employees:
For Sole Proprietors, Independent Contractors, and Self-Employed Individuals: The sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in one year, as pro-rated for the covered period.
Excluded payroll cost
Will this loan be forgiven?
Borrowers are eligible to have their loans forgiven.
A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 8-week period beginning on the date of the origination of the loan:
How could the forgiveness be reduced?
The amount of loan forgiveness calculated above is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees.
What if I bring back employees or restore wages?
Reductions in employment or wages that occur during the period beginning on February 15, 2020, and ending 30 days after enactment of the CARES Act, (as compared to February 15, 2020) shall not reduce the amount of loan forgiveness. If by June 30, 2020 the borrower eliminates the reduction in employees or reduction in wages.
When to Apply
Starting April 3, 2020, small businesses and sole proprietorships can apply. Starting April 10, 2020, independent contractors and self-employed individuals can apply.
How to Apply
You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating. All loans will have the same terms regardless of lender or borrower. A list of participating lenders as well as additional information and full terms can be found at www.sba.gov.
SBA Disaster Assistance Loan Program Summary
The SBA will be adopting regulations in the next week providing greater details.
SBA Disaster Assistance Loans
Time Frame January 31, 2020 - December 31, 2020 (Covered Period)
Small businesses, small agricultural cooperatives, private nonprofit organizations, and entities considered small for the industry in which they operate.
Must have suffered substantial economic injury (business is unable to meet its obligations and to pay its ordinary and necessary operating expenses) and be located in a declared disaster area. The entire country has been declared a disaster area for COVID-19.
SBA to approve loans based solely on an applicant’s credit score without requiring a tax return, or to use alternative methods to determine an applicant’s ability to repay.