CARES Act – Details on Expansion of SBA 7(a) Loan Program

The CARES Act provides additional funding to the Small Business Administration (SBA) for its 7(a)-loan program. These funds are anticipated to be available to small businesses by the end of next week, though there is not currently a way to apply for these loans on the SBA website.

We encourage you to contact your bank for information they may have on applying for loans. We believe that many of our small business clients should strongly consider applying for these loans.

Some details of the the CARES Act provisions are as follows:

Eligibility: Business, non-profit or veterans organizations that employs 500 or fewer employees measured per physical location or, if applicable and larger, the employee size standard established for the industry. Sole proprietors, independent contractors, and eligible self-employed individuals (as defined in Congress’s last COVID-19 bill, the Families First Coronavirus Response Act (Families First Act)) are eligible for loan recipients, subject to some documentation requirements to substantiate eligibility. There are also special provisions for the restaurant and hotel industries (NAICS codes beginning with 72, Accommodation and Food Services sector).

Loan Amounts: lesser of 2.5 times average monthly payroll costs (defined below) based upon the year immediately preceding the date of loan or $10 million.

Payroll costs: Salary, wage, commissions, tips or similar compensation payments to the extent that it would not exceed an annualized amount of $100,000 to the individual employee. Payroll costs for this purpose include paid vacation, parental, family, medical or sick leave (other than payments for which credit allowed under FFCRA), payments for provision of group health benefits, including premiums, and retirement benefits, and state and local taxes assessed on compensation of employees.

Allowable use of loan proceeds: Payroll costs, continuation group health benefits during periods of leave, interest portion of mortgage payments, rent, utilities and interest on other obligations entered into before February 15, 2020.

Amount of loan that is forgivable tax free: All payments made during the period for payroll costs, interest on covered mortgage, covered rent and covered utilities. The amount forgiven is reduced for decreases in full-time equivalent employees and decreases of more than 25% in compensation to employees making less than $100,000 on annualized basis. Reductions in FTE’s or compensation occurring between February 15, 2020 and 30 days after enactment of the Act are not taken into consideration if restored by June 30, 2020.

The maximum repayment term for the loan amounts not forgiven is 10 years.