Early on March 25, 2020, the Administration and Senate Republican and Democrat leaders reached agreement on key terms of the proposed Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Senate passage is expected later today, followed later by anticipated passage by the House and then signature by the president.
The proposed legislation would inject approximately $2 trillion into the economy, providing tax rebates, expanded unemployment benefits, and a wide range of provisions aimed at shoring up individual, family, and business finances. Among the relief measures are several key proposals that would provide financial assistance to “small” businesses affected by interruptions or uncertainties caused by the COVID-19 pandemic.
This alert addresses expanded SBA Loans under a new program called “Paycheck Protection Loan Assistance.” Alerts that will come addressing other parts of law will cover business tax, unemployment benefits, health care, and employment-related changes.
Some of the more significant terms of this financial assistance program include:
- Expansion of eligibility for SBA-guaranteed loans during the “covered period” of February 15, 2020 – June 30, 2020. Loans will be available to self-employed individuals (independent contractors, sole proprietors, other self-employed individuals), business concerns employing fewer than 500 employees, and many nonprofit organizations that employ fewer than than 500 employees.
- Loan amounts up to the lesser of:
- $10 million, or
- the product of the applicant’s average total monthly payments for payroll costs for the prior 12 months multiplied by 2.5 and adding, in some cases, an extra amount specified in a statutory formula.
- Loan amounts may be used to cover payments for payroll costs, continuation of group health care benefits during periods of leave, employee salaries and commissions, rent or mortgage interest, utilities, and interest on other pre-existing debt obligations.
- Loans bear interest at no more than 4%, are non-recourse against individual members of applicants (except where used for unauthorized purposes), and neither personal guarantees nor collateral can be required.
- Borrowers in operation as of February 15, 2020, may seek deferral for a minimum of six months and up to one year on loan payments as a presumed “impacted borrower” (i.e., one impacted by COVID-19).
- SBA will issue guidance for the deferral request process within 30 days after enactment.
- Borrowers may seek forgiveness of loan amounts up to costs of payroll, mortgage interest, rent, and utility payments. Percentage of forgiveness is based on number of employees during the covered period versus the same period in 2019.
- Any debt forgiven will be deemed “canceled” and not included in the gross income of the borrower under the Internal Revenue Code.
- Applicants must certify in the loan application that:
- funds are necessary due to uncertainty of economic conditions.
- funds will be used for proper purposes.
- the loan will not be duplicative of assistance previously requested.
Importantly, it will not be necessary to certify that applicant cannot obtain credit elsewhere.