On Friday March 27, President Trump signed into law the CARES Act which makes new loans available to small businesses and non-profits. The programs described below are managed through the Small Business Administration, which will be issuing guidance in the coming days as to where and how you can apply for assistance.
LOANS TO FUND PAYROLL, RENT, AND UTILITIES
The “Paycheck Protection Program” portion of the CARES Act makes loans of up to $10 million available to eligible small businesses, non-profits, veterans’ organizations, tribal concerns, and some independent contractors.
Who is Eligible for a Loan?
Businesses that were in operation prior to February 15, 2020, had employees for whom the business paid salaries and payroll taxes, and had not more than 500 employees (including affiliated entities) are eligible for a paycheck protection loan. Some exceptions to the 500 employee limit are available to businesses in the Accommodations and Food Services industries (NAIC Code 72), franchises that have been assigned a franchise identifier code by the Small Business Administration, and small businesses that receive financing through the Small Business Investment Company Program.
Businesses applying for a loan will need to certify to the bank that
No personal guarantees or collateral are required to secure a loan under this program.
How Much Money Can I Get?
The maximum amount available to any one business is calculated using a formula based on 2.5 times the average monthly payroll costs of the business during a specified period. The maximum amount any one business is capped at $10 million.
What Can I Use the Loan Proceeds For?
Can All or a Portion of the Loan be Forgiven?
Amounts paid during the 8 week period following issuance of the loan for payroll, rent, mortgage interest, and utilities are eligible to be forgiven – meaning those amounts do not have to be repaid. The amount of loan forgiveness can be reduced (by a formula) if the number of full-time equivalent employees employed goes down or salaries are reduced. The formula does not apply if by June 30 the business rehires full-time equivalent employees who were laid off between February 15, 2020 and April 26, 2020 or restores salaries that were reduced during that period.
The business will have to apply for forgiveness and show that funds were used to pay payroll, rent, etc. during the 8 week period following the disbursement of the loan.
Any remaining balance of the loan will be guaranteed by the SBA and have a term of no more than 10 years after the business applies for loan forgiveness. There is no pre-payment penalty for any early payment.
How and When Can I Apply for a Loan Under This Program?
It is not yet known how and where you can apply for a loan. The SBA is required to issue implementation regulations by the middle of April. These loans will be available only until June 30, 2020.
ECONOMIC INJURY DISASTER LOANS (EIDL) AND EIDL GRANTS
Small businesses are also eligible to apply for economic injury disaster loans under the existing SBA disaster loan programs. For new loans applied for in response to COVID-19, certain rules on personal guarantees and application rules are waived until December 31.
The CARES Act also created an emergency grant of up to $10,000 for business that are applying for an economic injury disaster loan which can be used for paying payroll, rent and mortgage, utilities, meeting increased costs to obtain materials due to interrupted supply chains and repaying obligations that cannot be met due to revenue losses.
If a business receives an economic injury disaster loan grant and subsequently receives a loan for payroll costs under the Paycheck Protection Program, the amount of the grant will be reduced from the loan forgiveness amount allowed under that program.
© Caulkins & Bruce PC, 2020. The information presented is for informational purposes only. You should not construe it as legal advice or a legal opinion on any specific fact or circumstances.
"Obtained a judgment for condominium association in excess of $1 million against developer of condominium in Fairfax County."
"Defended an officer of a government contractor in a case involving enforcement of a non-competition agreement."
"Defended and achieved favorable settlement of wrongful termination and discrimination claims brought in United States District Court for the Eastern District of Virginia."
"Served as outside counsel to several franchisors, prepared franchise agreements, franchise disclosure documents and state franchise registrations, and counseled franchisors regarding franchise compliance issues."