The CARES Act amends the Small Business Act to provide up to $349 billion in emergency Paycheck Protection Program loans and up to $10 billion in Economic Injury Disaster Loans, to small and medium-sized businesses and nonprofit organizations affected by the COVID-19 pandemic.

Paycheck Protection Loans

The Paycheck Protection Program (PPP) loan is a new type of Section 7(a) loan that must be made on or before June 30, 2020, by partner lenders of the Small Business Administration (SBA) and guaranteed by the SBA.

Maximum Loan Amount

The lesser of $10 million or 2.5 times the average monthly payroll:

• During the 1-year period prior to the date of the loan; or
• For seasonal employers, during the 12-week period beginning February 15, 2019, or from March 1, 2019 to June 30, 2019; or
• For new employers, during January 1, 2020 to February 29, 2020.

Eligibility

Any business concern, nonprofit organization, veterans organization or Tribal business that employs 500 employees or less, or businesses in an industry with an employee-based standard through the Small Business Administration. Sole proprietorships, independent contractors and self-employed individuals (as defined in the Families First Coronavirus Response Act) are also eligible. Finally, restaurants, hotels and businesses that fall within the NAICS code 72 classification that have 500 or fewer employees per physical location, are eligible. For purposes of determining the number of employees, the term “employee” includes those employed on a full-time, part-time, or other basis. All businesses must have been operational on February 15, 2020.

Covered Loan Period

February 15, 2020 to June 30, 2020.

Use of Loan Proceeds

Loan proceeds may be used to pay for costs of the workforce and keeping the doors open, including payroll costs, costs related to the continuation of group health care benefits, mortgage payments, rent, utilities, and interest on any other debt obligations that were incurred before February 15, 2020. “Payroll costs” mean salary, wages, commission, tips, or similar compensation; vacation, parental, family, medical, or sick leave payments; separation allowance; group health care benefits payments, including insurance premiums; and retirement benefits payments; state and local payroll taxes. Payroll costs do not include compensation to an individual employee in excess of a $100,000 annual salary as prorated for the covered period; certain taxes under the IRS Code; compensation to employees who reside outside of the U.S.; and FFCRA sick leave and family leave for which a tax credit is allowed.

Certification

The business must certify that the loan is necessary to support its ongoing operations due to the current uncertain economic conditions; the proceeds will be used to retain employees, maintain payroll or make mortgage payments, lease payments, and utility payments; and it has not applied for or received proceeds from any other paycheck protection loan.

Loan Forgiveness

The loan is forgiven at the end of the 8-week period after the loan is originated subject to the following requirements, and borrowers can choose which 8 weeks they want to count towards the covered period which can start as early as February 15, 2020. The amount of loan principal that may be forgiven is equal to the sum of expenses for payroll costs, and existing interest payments on mortgages entered into before February 15, 2020, rent payments on a lease entered into before February 15, 2020, and covered utility payments. The PPP Loan can be used for other business-related expenses, but that portion of the loan will not be forgiven. Any amount of loan forgiveness is excluded from taxable income. However, a borrower whose loan is forgiven is not eligible for the payroll tax payment deferral offered under Section 2302 of the Act.

Reductions in Loan Forgiveness – Number of Employees

The amount of loan forgiveness available to a business will be reduced if the business fails to maintain the same level of full-time equivalent employees (FTEs) as it employed during certain time periods. The loan forgiveness will be reduced by multiplying the loan amount (L) by the ratio of reduced number of FTEs during the covered period (A) divided by one of the following:

• The average number of FTEs between February 15, 2019 and June 30, 2019 (B1);
• The average number of FTEs between January 1, 2020 and February 29, 2020 (B2); or
• For seasonal employers, the average number of FTEs per month between February 15, 2019 and June 30, 2019 (B3).

Reductions in Loan Forgiveness – Salary and Wages

The loan forgiveness is also reduced by the amount of any reduction greater than 25% during the Covered Period the wages the employee was paid during the most recent full quarter the employees received wages, and only for those employees who were paid an annualized salary of $100,000 or less during any single pay period during 2019.

Exemption for Re-Hired Employees

Businesses who have reduced the number of employees and/or salary or wages between February 15, 2020 and 30 days after March 27, 2020, but then re-hire the reduced employees and/or eliminate the reduction in salary or wages, will see a lower reduction in loan forgiveness in direct proportion to the number of re-hired employees and/or the amount of the salary or wage restoration.

Loan Particulars

Any portion of the loan that is not forgiven is subject to:

• Payment of principal, interest, and fees deferred for at least 6 months but not more than 1 year.
• Interest capped at 4% per annum.
• No prepayment penalty.
• No personal guaranty or collateral required.
• Unless the loan proceeds are used for a non-authorized purpose, the SBA will have no recourse to the shareholders, members or partners of the business for nonpayment of the loan.

Applying for a PPP Loan

Eligible businesses can apply for the PPP loan at any lending institution that is approved to participate in the program through the existing U.S. Small Business Administration SBA 7(a) lending program. Applicants are eligible to apply for the loan until June 30, 2020.

SBA Express Loan

An SBA Express Loan is a financing option that was available to small and medium size business owners prior to enactment of the CARES Act. The CARES Act simply revises the loan terms so that through December 31, 2020, the maximum amount that may be borrowed is increased from $350,000 to $1,000,000.

Economic Injury Disaster Loan

The Economic Injury Disaster Loan (EIDL) expands the existing EIDL loan program under the SBA.

Maximum Loan Amount

Capped at $2 million.

Eligibility

“Small business concerns” who are currently eligible under original EIDL program, any business, cooperative, Employee Stock Ownership Plan (ESOP) or tribal business concern with fewer than 500 employees, private nonprofit organizations, small agricultural cooperatives, and individuals who operate as a sole proprietorship or an independent contractor with or without employees.

Covered Loan Period

January 31, 2020 to December 31, 2020

Use of Loan Proceeds

Loan proceeds can be used to provide sick leave to employees unable to work due to COVID-19, payroll, increased material costs due to interrupted supply chains, rent or mortgage payments, repaying obligations that cannot be met due to revenue losses.

Emergency Advance

Borrowers who need an immediate influx of funds may request an emergency advance up to $10,000 within three days after the SBA receives the application. If the application is denied, the borrower is not required to repay the $10,000 advance.

Loan Particulars

• No personal guarantee required on advances and loans of not more than $200,000.
• No requirement that the applicant be in business for the one-year period before the disaster, so long as the business was in operation on January 31, 2020.
• No requirement that the applicant be unable to obtain credit elsewhere.
• Applicants may be approved based solely on credit score, and no tax return required.

Applying for EIDL Loan

Go to https://www.sba.gov/disaster/apply-for-disaster-loan/index.html.

Frequently Asked Questions

May businesses borrow under both loan programs?

Yes. Borrowers may apply for an EIDL loan in addition to a loan under the Paycheck Protection Program, provided the loans are not used for the same purpose.

What if I have an existing SBA loan? Will it be impacted by the CARES Act?

Yes. For any SBA-guaranteed Section 7(a) loans (other than PPP Loans) in regular servicing status made before the CARES Act was enacted, or during the six-month period after enactment, the SBA will pay all scheduled principal, interest and fees due during such period. Your payments will resume after the six- month period ends, but you will not be responsible to the lender or the SBA for the principal, interest or fees scheduled to be paid during the subsidy period and paid by the SBA.

I own a large or medium-sized business such that I don’t qualify for the stimulus loans described above. Does the CARES Act provide assistance for me?

As the owner of a large business (a business with greater than 10,000 employees) or a medium-sized business (501-10,000 employees), your business could qualify for Economic Stabilization and Assistance Loans or loan guarantees. These are loans or loan guarantees made or facilitated, or debt securities purchased by the Department of the Treasury to support passenger and cargo air carriers as well as other United States businesses that have not otherwise received adequate economic relief through loans and loan guarantees under the CARES Act.

For a large business, qualifying for this type of loan requires a determination by the Treasury Department that, among other things: (a) credit from other sources is not reasonably available to the applicant; (b) the loan or loan guaranty is sufficiently secured or is made at risk-appropriate, market rates; (c) the duration of the loan or loan guarantee is as short as practicable and in no event longer than five (5) years; (d) the applicant will not use the funds to repurchase equity investment while the loan or loan guaranty is outstanding; and (e) the business maintains its existing employment levels as of March 13, 2020.

For mid-sized businesses, the CARES Act sets up a program for the Department of the Treasury to provide financing to banks and other lenders to then make direct loans to eligible mid-sized businesses and nonprofit organizations. The interest rate is capped at 2% per annum. For the first six months after disbursement (or longer if determined by the Treasury Department), no principal or interest is due and payable. A medium-sized business applicant must make good faith certifications that:

1. uncertain economic conditions make the loan necessary to support the recipient’s ongoing operations;
2. loan proceeds will be used to retain at least 90% of the recipient’s workforce, at full compensation and benefits, through September 30, 2020;
3. the recipient intends to restore at least 90% of its workforce that existed as of February 1, 2020, and to restore all compensation and benefits to its workers no later than four months after the termination of the COVID-19 emergency declared by the Department of Health and Human Services;
4. the recipient is domiciled in the United States with significant operations and employees in the United States;
5. the recipient is not a debtor in a bankruptcy proceeding;
6. the recipient is incorporated or organized within the United States and has significant operations in and a majority of its employees in the United States;
7. the recipient will not pay dividends to its stockholders (or, presumably, distributions to members or partners) or repurchase any equity security of the recipient or its parent that is listed on a securities exchange while the loan is outstanding, except to the extent required under a contractual obligation in effect before the CARES Act is enacted;
8. the recipient will not outsource or offshore jobs for the term of the loan and for two years after completing repayment of the loan;
9. the recipient will not abrogate existing collective bargaining agreements for the term of the loan and for two years after completing repayment; and the recipient will remain neutral in any union organizing effort for the term of the loan.