Breaking Down the Coronavirus Aid, Relief, and Economic Security (CARES) Act

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The programs and initiatives in the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was just passed by Congress are intended to assist business owners with whatever needs they have right now. 

When implemented, there will be many new resources available for small businesses, as well as certain nonprofits and other employers. 

What’s in CARES for small business?

Significant Expansion of SBA Lending – with banks as an important part of the delivery mechanism.

• Authorizes $350 billion for three months of 100% guaranteed 7(a) loans to cover payroll costs, interest on mortgage payments, rent obligations, and utilities.

  • Applies to businesses with fewer than 500 employees or those that meet SBA’s current size standards for 7(a) loans.
  • Applies to self-employed or individual contractors.
  • Applies to certain nonprofits including 501(c)(3) organizations and 501(c)(19) veterans organizations, and tribal business concerns with fewer than 500 employees.
  • Vastly expands universe of lenders authorized to get paycheck loans processed and into the hands of business owners as quickly as possible. This includes banks that previously have not participated in the SBA 7(a) program.
  • Authorizes $17 billion to cover six months of payments for payroll and interest for existing SBA 7(a) borrowers. This provision provides relief on existing obligations.
  • Establishes a Paycheck Protection Program (PPP):
    • Provides 100% guaranteed loans to cover specific operating costs.
    • Provides 100% guaranteed loans to cover specific operating costs.
    • The maximum loan size for borrowers is capped at the lesser of 250% of the average monthly payroll costs (with a lookback of one year or relevant period for seasonal businesses), or $10 million.
    • Includes a processing fee payable to lender within 5 days of loan disbursement, based on the loan’s size.
      < $350,000 = 5%
      $350,000 to $2,000,000 = 3%
      > $2,000,000 = 1%
    • Interest rate capped at 4%.
    • A portion of any loan issued as part of the PPP, up to or equal to 8 weeks of covered expenses, will be forgiven by SBA and paid to the lender, plus interest.
    • The remaining balance after forgiveness is maintained at the 100% guarantee for the duration of the loan.
  • The limit for Express Loans is raised from $350,000 to $1 million through December 31, 2020.
  • The existing Interim Final Rule titled: Express Loans, Affiliation Standards is rescinded on date of enactment. This rule detrimentally impacted rural, agricultural focused members as well as members that relied on agents.
  • Authorizes $265 million for SBA’s Entrepreneurial Development Programs.
  • Authorizes $10 billion for additional Emergency Injury Disaster Loans (EIDLs) to be disbursed directly by SBA to those businesses that do not currently qualify for EIDLs. If a borrower applies for EIDL, they cannot apply for PPP due to concerns about double-dipping.
    • These new EIDLs also include an option for a $10,000 cash advance within three days of application that does not have to be paid back even if the borrower’s application is subsequently rejected.

Can these loans be forgiven?

Yes, small businesses that take out these loans can get some or all of their loans forgiven. Generally speaking, as long as employers continue paying employees at normal levels during the eight weeks following the origination of the loan, then the amount they spent on payroll costs (excluding costs for any compensation above $100,000 annually), mortgage interest, rent payments and utility payments can be combined and that portion of the loan will be forgiven.

How big of a loan can I get and what are the terms?

The maximum loan amount under the Paycheck Protection Act is $10 million, with an interest rate no higher than 4%. No personal guarantee or collateral is required for the loan. The lenders are expected to defer fees, principal and interest for no less than six months and no more than one year.

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