Yesterday, the President signed the
Coronavirus Aid, Relief, and Economic Security (CARES) Act
into law. This Act creates relief for small businesses and their employees who are adversely affected by the COVID-19 outbreak through loans made available through the
Small Business Administration (SBA) 7(a) Loan Program
. This is in addition to a separate program already in place through the SBA, to provide
Economic Injury Disaster Loans (EIDL)
through the 7(b) program
. To the business owner, these can be very confusing. Summarized below are the significant items related to each loan program.
CARES Act - 7(a) loan "Paycheck Protection Program"
- Eligibility: Small businesses, defined as businesses with less than 500 employees operating as of 2/15/2020, nonprofit organizations, veterans organizations and tribal businesses. (Some exclusions based on industry, see the Act for definitions.)This includes sole-proprietors, independent contractors and self-employed individuals.
- Eligible Uses: Loans are intended to be used to pay payroll costs (compensation, health care benefits, paid leave and retirement benefits) for employees, mortgage interest, rent, utilities, and interest on other debt. These loans can also be used to refinance EIDL loans originated between 1/31/2020 and borrowings under the CARES Act.
- Loan Terms: $10,000,000 Maximum | Interest Rates of no more than 4% | 10 year term after application for loan forgiveness on unforgiven portion | No loan fees
- Collateral: No collateral or personal guarantees
- Application process: Applications are funneled through SBA approved lenders.
- Applicants must make a "good faith certification" that they have been impacted by COVID-19 and will use funds to retain workers and maintain payroll and other debt obligations.
- Items need to apply: To be determined by SBA
- Loan forgiveness: a portion of this loan is eligible for loan forgiveness. The amount potentially forgiven is based on a calculation of actual payroll costs, mortgage interest, rent and utilities incurred within the 8 week period immediately following the loan disbursement. The amount of forgiveness could be reduced if the number of full time equivalent employees or the amount of salary and wages is reduced during the 8 week period.
- Loan forgiveness is not taxable to the borrower.
Economic Injury Disaster Loans - 7(b) loan
- Eligibility: Small businesses, typically defined as businesses with less than 500 employees, and private nonprofits. (Some exclusions based on industry.)
- Eligible Uses: Loans are intended to be working capital loans used to pay fixed debts, payroll, accounts payable, and other bills that can't be paid due to the loss of revenue caused by COVID-19. These loans cannot be used to cover lost profits or to refinance existing debts.
- Loan Terms: $2,000,000 Maximum | Interest Rates of 3.75% for small business and 2.75% for nonprofits | Maximum length of 30 years | No loan fees
- Collateral: required for all loans over $25,000. Real estate will be taken as collateral when available
- Borrowers may request an emergency advance of not more than $10,000 within three days after submitting an application. An applicant is not required to repay any amounts of an advance, even if the application is subsequently denied.
- Application process: Applicants are encouraged to apply online at https://disasterloan.sba.gov/ela/ | Applications will be approved on a case by case basis | Applicants must have an acceptable credit history to the SBA
- Items needed to apply (but not limited to): SBA Form 5 | IRS Form 4506-T | Most recent Federal Income Tax Returns | Personal Financial Statement for each principal owning 20% or more | Schedule of Liabilities listing all fixed debts
We are monitoring these developing guidelines, and additional information is expected to come out on the CARES loan application process over this weekend and early next week. Approved lenders are expected to begin accepting applications in 7-10 days.
This is a rapidly moving program and process, with a number of details and requirements yet to be determined and provided to applicants and their advisors.
At Sponsel CPA Group, we have assembled an internal
SBA Loan Task Force to assimilate this information and advise our clients and friends. In addition we will be able to assist business owners in a relatively streamlined process to package the required data as will be required by SBA and the authorized lenders (all yet to be specifically prescribed).
If we can assist you in explaining the programs' provisions, analyze the potential benefits or assist you in with gathering the needed information please call any Sponsel CPA Group Team member or our colleagues listed above.