Relevant Links from SBA:
Small Business Guidance Loan Resources
Distaster Loan Assistance Program
CARES Act Provider Relief Fund
Paycheck Protection Program Rules – From Morris, Manning & Martin
April 6, 2020 – FFCRA Small Business Exemptions, An Update from Morris, Manning & Martin LLC
Small Business Interruption Loans as proposed in the new CARES Act: Obtaining a Small Business Loan pursuant to Section 7(a) of the Small Business Act : Businesses with less than 500 employees are eligible to apply for a loan under 7a of the Small Business Act (15 U.S.C. 636(a)).
CARES Act and SBA 7(a) Small Business Interruption Loans
On March 27th, the President signed into law the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). This new law will enhance the Small Business Administration’s 7(a) loan program to help small businesses and nonprofits during this challenging time to cover the costs of payroll and other operational costs. The loans are guaranteed 100% by the federal government and not by businesses or individuals. If the funds are used on eligible expenses and specific criteria are met, the loan can be forgiven (i.e., does not have to be repaid).
Loan amount:
Applicants are eligible for a loan equal to 2.5 times their average monthly payroll costs for the previous 12 months. The maximum amount of a 7(a) loan is $10 million. There are no loan fees and the interest rate is fixed at 4%, however the loan has a forgiveness feature if the criteria below are met.
Use of Funds:
Payroll costs, including payroll tax, sick leave, health insurance premiums and retirement benefits
Mortgage interest originating prior to February 15, 2020
Other debt interest originating prior to February 15, 2020
Rent
Utilities
Who is eligible?
Any of the following that were in operation prior to February 15, 2020:
Businesses with less than 500 employees
Self-employed individuals
Nonprofits with less than 500 employees
Application Process:
The SBA is currently finalizing the application process, but most likely they will require prior year tax returns and payroll information. Applicants will be required to sign a good faith certification that they have been affected by COVID-19 and that funds will be used to retain employees and existing debt obligations. We will update this information as details are released.
Loan Forgiveness:
After the initial 8 weeks of loan, borrowers can apply to have up to 100% of their loan forgiven. The amount forgiven will be amount spent on the expenses listed above in “Use of Funds.” These expenses must be incurred in the first 8 weeks of the life of the loan. To prove that the business or nonprofit met all the criteria during this 8-week period, they must provide specific documentation to the lender related to the appropriate use of the funds.
These funds are intended to help businesses to maintain the same level of employees that they had in the recent past. The borrower must provide documentation to prove they maintained the same number of full-time employees (FTEs) and similar pay rates. If the borrower does not maintain the same level of FTEs the amount of their loan that is eligible for forgiveness is decreased proportionally.
Debt forgiveness is typically taxed as income, but under this program the loan forgiveness is tax free.