This is a brief summary of the CARES Act Small Business Loans relief program. Here are the very basic points to consider which will help you decide whether or not to pursue relief under this Act.
The Coronavirus Aid, Relief, and Economic Security (CARES)
Act allocated $350 billion to help small businesses keep
workers employed amid the pandemic and economic
downturn. Known as the Paycheck Protection Program,
the initiative provides 100% federally guaranteed loans
to small businesses.
Importantly, CARES Act Small Business Loans may be forgiven if borrowers
maintain their payrolls during the crisis or restore their
Am I Eligible?
You are eligible if you are:
- A small business with fewer than 500 employees.
- A small business that otherwise meets the SBA’s size standard.
- A 501(c)(3) with fewer than 500 employees.
- An individual who operates as a sole proprietor.
- An individual who operates as an independent contractor.
- An individual who is self-employed who regularly carries on any trade or business.
- A Tribal business concern that meets the SBA size standard
- A 501(c)(19) Veterans Organization that meets the SBA size standard
What Will Lenders Be Looking For?
In evaluating eligibility for CARES Act Small Business Loans, lenders are directed to consider whether the borrower was in operation before February 15, 2020 and had employees for whom they paid salaries and payroll taxes or paid independent contractors.
Lenders will also ask you for a good faith certification that:
- The uncertainty of current economic conditions makes the loan request necessary to support ongoing operations
- The borrower will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments
- Borrower does not have an application pending for a loan duplicative of the purpose and amounts applied for here
- From Feb. 15, 2020 to Dec. 31, 2020, the borrower has not received a loan duplicative of the purpose and amounts applied for here (Note: There is an opportunity to fold emergency loans made between Jan. 31, 2020 and the date this loan program becomes available into a new loan)
If you are an independent contractor, sole proprietor, or self-employed individual, lenders will also be looking for certain documents (final requirements will be announced by the government) such as payroll tax filings, Forms 1099-MISC, and income and expenses from the sole proprietorship.
How Much Can I Borrow?
Loans can be up to 2.5 x the borrower’s average monthly payroll costs, not to exceed $10 million.
Will This Loan Be Forgiven?
Borrowers Are Eligible To Have Loans Forgiven
A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 8-week period beginning on the date of the origination of the loan:
- Payroll costs (using the same definition of payroll costs used to determine loan eligibility)
- Interest on the mortgage obligation incurred in the ordinary course of business
- Rent on a leasing agreement
- Payments on utilities (electricity, gas, water, transportation, telephone, or internet)
- For borrowers with tipped employees, additional wages paid to those employees
The loan forgiveness cannot exceed the principal
This is just a brief summary of the CARES Act Small Business Loans there is more detail available but this is the basic summary of what you need to know before you get started.
Feel free to contact us for more information.
Go to our CoronaVirus Resource page for more information on other programs that are available now and learn about others that are being discussed.
The US Chamber of Commerce has good information on what’s available for small businesses at their website here.