SBA Loan Programs Under the CARES Act

Mar 29, 2020 | Brad Graves
Reading Time: 4 minutes

New or Modified SBA Loan Programs under the Recently Enacted Coronavirus Aid, Relief, and Economic Security Act (CARES)

The following new or modified loan programs under the CARES Act are administered by the SBA, through qualified SBA lenders.  As this is a new Act, rules and regulations will follow, along with anticipated published guidance and changes along the way.  We advise you to work closely with a qualified SBA lender in determining the best approaches to your capital needs and select the best program, or combination of programs, for your needs.

Paycheck Protection Program

New loan program under Sec. 7(a)(36) of the Small Business Act (15 U.S.C 636)
  • New loan program under the Act, which is intended to subsidize the retention of employees at previous compensation levels.
  • Administered by qualified SBA lenders. If no current relationship, one may locate a lender online, through SBA site at https://www.sba.gov/funding-programs/loans/lender-match
  • Eligible businesses are the greater of the following standards (i) employing 500 employees or less, or (ii) a small business within the size standard established by the SBA for the businesses’ industry found at sba.gov/size-standards/.
  • Sole proprietorships, independent contractors and self-employed individuals are eligible if they submit documentation that they meet all the requirements.
  • The maximum loan amount is the lesser of (i) the sum of (a) the product of the average monthly payroll costs for the prior 1 year period multiplied by 2.5, plus (b) the outstanding balance of any SBA EIDL loans made between January 31 and the date this loan is made available, or (ii) $10 million. Special payroll cost calculations apply to seasonal employers and businesses not in existence for a year.  Note that borrowers may also receive loans under the SBA EIDL program as long as it wasn’t for paying payroll costs or other obligations described in “Use of loan proceeds” below.
  • Payroll costs means (i) wages, tips, paid time off (not including paid leave for which a tax credit is allowed), and separation pay not exceeding a $100,000 annual rate, (ii) group health, (iii) retirement benefits, and (iv) payment of state or local taxes assessed on employee compensation.
  • Use of loan proceeds may be for payroll costs, health benefits, interest on mortgages, rent, utilities, and interest on other debt incurred before February 15, 2020.
  • Loans are nonrecourse and no personal guarantee required. But, require borrower certification that (i) current economic conditions necessitate the loan to support ongoing operations, (ii) that funds will be used to retain workers, maintain payroll, make mortgage payments, lease payments and utility payments, (iii) they have no other pending SBA loan application under this program for the same purpose, and (iv) between February 15, 2020 and December 31, 2020 the applicant has not received other amounts under this program for the same purpose.
  • Loan will bear interest at a rate not to exceed 4%. Deferral of payments of principal and interest is provided by lenders for a minimum period of 6 months and a maximum of 1 year.  There is no prepayment penalties.
  • Loan forgiveness is available in an amount equal to the sum of the following costs incurred during the 8 weeks after loan origination: (i) payroll costs, (ii) interest on mortgages incurred before February 15, 2020, (iii) rent on leases in force before February 15, 2020, and (iv) utility service which began before February 15, 2020. The amount of eligible forgiveness will be reduced by a fraction, of which the numerator is the average number of full-time equivalent employees employed per month, and the denominator is, at the borrower’s choice, the average number of full-time equivalent employees employed per month either (i) during the period beginning February 15, 2019 and ending on June 30, 2019, or (ii) during the period beginning January 1, 2020 and ending on February 29, 2020.  Seasonal employers use the period beginning February 15, 2019 and ending on June 30, 2019.  To calculate the average, use the average full-time equivalent employees in each pay period falling within a month.  The Act contains an ability to cure any reduction that occurred during the first 30 days after enactment, as long as the reduction is eliminated by June 30, 2020.  The Act contains a second reduction of eligible loan forgiveness in the amount of any reduction in excess of 25% of total wages of any employee who was at an annual compensation rate of $100,000 or less.
  • Documentation verifying payroll, along with certification from a representative of the borrower will be required for loan forgiveness.
  • The Act includes a provision confirming that any such loan forgiveness under this subsection will be excluded from gross income.
  • Balances remaining, after any forgiveness, will have a maximum maturity of 10 years from date borrower applies for forgiveness.

Express Loans Amended under New Act

Existing loan program modified by the Act under Sec. 7(a)(31)(D) of the Small Business Act (15 U.S.C 636)
  • Must be from qualified express lender.
  • For areas which the President has declared a major disaster.
  • Loans of up to $1 million during 2020. Will revert back to $350,000 effective January 1, 2021.
  • Express Bridge Loans available up to $25K for borrowers with an SBA relationship to assist with temporary revenue loss. May bridge the gap while applying for the EIDL loan.

Emergency EIDL Loans

Existing loan program modified by the Act under Sec. 7(b)(2)  of the Small Business Act (15 U.S.C 636)
  • Eligible businesses with not more than 500 employees, including sole proprietorships, experiencing economic injury after a declared disaster to cover business operating expenses.
  • Certain provisions waived during covered period, including personal guarantees waived for loans of not more than $200,000 during the covered period, the requirement that the applicant be in business for 1 year before the disaster as long as it was in business on January 31, 2020, and the requirement that the applicant be unable to obtain credit elsewhere.
  • Emergency advance of funds may be requested within 3 days for amounts up to $10,000 for the purposes of paying sick leave, maintaining payroll to retain employees, costs to obtain materials due to interrupted supply chains, rent or mortgage payments, and repaying obligations that cannot be met due to revenue losses. Applicants shall not be required to repay advances even if subsequently denied a loan.  Any advance will reduce any loan forgiveness for Paycheck Protection loans above.
  • Loan amount currently go up to $2 million per the SBA website.