The CARES Act as currently written would provide significant further relief for small businesses, including $300 billion for Small Business Administration (SBA) loan guarantees and subsidies and additional funding for SBA resources.
The Act is over 800 pages as written but I only summarized the main provisions that, in my opinion, are most crucial to CPA Solutions clients. Please note that this Bill is still not live and it has to be voted on by the Senate. There is also no procedural guidance available for the roll-out of this program at this time and we are advising our clients to continue applications for the SBA Economic Injury Disaster Loan.
The 7(a) loan program is the SBA’s primary program for providing financial assistance to small businesses. The CARES Act would increase the maximum 7(a) loan amount to $10 million and would expand allowable uses of 7(a) loans to include payroll support (including paid sick or medical leave), employee salaries, mortgage payments, insurance premiums and any other debt obligations.
Under the CARES Act, the loan period for this program would begin on February 15, 2020, and end on December 31, 2020. The program would cover businesses (including sole proprietors, independent contractors and other self-employed individuals) with fewer than 500 employees (up to 1,500 depending on the sector and certain sectors are based on revenue).
(1) A business that was operational on February 15, 2020;
(2) A business that had employees for whom it paid salaries and payroll taxes, or paid independent contractors; and
(3) The business has been substantially impacted by COVID-19. Eligible borrowers would be required to make good faith certification that they have been affected by COVID-19 and will use funds to retain workers and maintain payroll and other debt obligations.
(1) Generally the amount of monthly payroll costs (Salaries and wages + payroll taxes) for 2.5 months, not to exceed $ 10 million. Payroll costs are capped at $100,000 annual compensation per employee;
(2) A borrower that receives a 7(a) loan for employee salaries, payroll support, mortgage payments and/or other debt obligations would not be able to receive an SBA economic injury disaster loan (EIDL) for the same purpose, or co-mingle funds from another loan for the same purpose;
(3) The maximum loan for an SBA Express loan would be increased from $350,000 to $1 million through December 31, 2020, after which point the Express loan would have a maximum of $500,000.
(1) Borrowers would be eligible for loan forgiveness in an amount equal to the amount spent by the borrower during an eight-week period after the origination date of the loan on the following items:
a. Payroll costs;
b. Interest payments on mortgages;
c. Payment of rent or lease;
d. Utilities.
(2) The amount forgiven would be reduced in proportion to any reduction in employees retained compared to the prior year and to the reduction in pay of any employee beyond 25% of employee’s prior year compensation;
(3) Borrowers that rehire workers previously laid off will not be penalized for having reduced payroll at the beginning of the period.
(1) Both borrower and lender fees for 7(a) loans would be waived;
(2) The “credit elsewhere” test and collateral and personal guarantee requirements would be waived during the covered period;
(3) Government guarantee of 7(a) loans would be increased to 100% through December 31, 2020. After that date, guarantee percentages would return to 75% for loans exceeding $150,000 and 85% for loans equal to or less than $150,000.
(1) Emergency EIDL Grants – An emergency grant that allows an eligible entity that has applied for an EIDL loan to request an advance on that loan of no more than $10,000, which the SBA must distribute within three days. An applicant would not be required to repay such an advance payment, even if it is subsequently denied an EIDL;
(2) Entrepreneurial Development – SBA to provide additional financial awards to resource partners (including Small Business Development Centers and Women’s Business Centers) to provide counseling, training and education on SBA resources and business resiliency to small business owners affected by COVID-19.
(3) Minority Business Development Agency – $10 million for grants to Minority Business Centers for the purpose of providing counseling, training and education on federal resources and business response to COVID-19 for small businesses.
CPA Solutions staff is working diligently to assist our clients with financial assistance applications and be there for our clients to answer their questions and provide guidance.