Dear Clients and Friends:
On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act in the Senate (the “CARES Act”), that is expected to be signed by the President soon. A key section of this Act involves emergency loan provisions, where the SBA is authorized to guarantee up to $349 billion in 7(a) loans until December 31, 2020 that are forgivable subject to certain rules and limitations.
- Eligibility – Businesses and nonprofits with up to 500 employees (or potentially larger for some industries) that were operational on February 15, 2020, had employees for whom the borrower paid salaries and payroll taxes, or paid independent contractors, and are substantially impacted by public health restrictions related to COVID-19. The normal SBA requirement that the applicant not be able to get credit elsewhere through reasonable means does not apply.
- Limits – 2.5 x the business’s average total monthly payroll costs during the one-year period prior to the loan, up to $10 million. Payroll costs include salaries, wages, tips, payments for sick leave, insurance premiums and state and local taxes assessed on the compensation of employees
- Purpose – The loan proceeds are limited to cover most salaries and other payroll costs, group health benefits, rent, mortgage interest payments, utility payments, and interest payments on debt obligations incurred prior to February 15, 2020.
- Forgiveness – Funds used to cover payroll, rent, mortgage interest and utilities for 8-weeks starting from the loan origination date will be forgiven, subject to certain rules and limitations. Forgiven amounts are nontaxable to the borrower.
- Lenders – SBA and Treasury-approved banks, credit unions, and some nonbank lenders.
- Other Considerations – Personal guarantees and loan fees are waived and repayments are deferred for 6-12 months; maximum loan term is 10 years, interest rate cannot exceed 4%.
Some businesses may find this new emergency loan program more favorable for their specific situation than a 7(b) Economic Injury Disaster Loan (“EIDL”) discussed here, which is not generally available to applicants who can reasonably access other funds or borrow from other sources and has different limits (although we understand some exceptions and loosening may apply in some cases), rules on allowable uses of funds and other rules. Businesses should evaluate which program suits their needs best before applying. However, it appears that a business may be able to utilize both loan programs in some situations.
Please contact our team of professionals if you need assistance with evaluating these options and/or applying for an emergency SBA loan.
CoNexus CPA Group, LLC