Small Business Interruption Loans–Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)

The federal government will be allocating $349 billion to the Small Business Administration to guarantee loans (referred to as 7(a) loans) to small businesses.

Key Take-Aways:

  • Any business with less than 500 employees can apply.
  • Any business that applies is presumed to need the loan.
  • Self-employed, independent contractors and non-profit organizations are eligible.
  • No loan guarantees required and no loan fees.
  • The amount of the loan is tied to an applicant’s average monthly payments for payroll costs incurred during the one-year period before the loan is made.  The loan is 2.5 times that amount up to a maximum of $10M.  You will need to submit this information in the loan application, along with other detailed information.  The application is anticipated to take some time and effort.
  • Need to make a “good faith certification” that the uncertainty of the current economic environment makes the loan request necessary, that you intend to use the funds to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments, and that you have not applied for another Section 7(a) loan.
  • Loan proceeds can be used for payroll costs, interest on mortgages, and loans incurred before February 15, 2020, rent and utilities.
  • Loan payments can be deferred for six months, but not more than a year.
  • All or a portion of the loan can be forgiven for the sum of total payroll costs on employees with annual salaries under $100,000, interest, rent, and utilities incurred during the eight week period beginning with the origination of the loan.  Evidence certified by an officer or owner will need to be provided in an application to your bank or credit union to receive the forgiveness.
  • Loan forgiveness will not be taxable.
  • Any unforgiven loan balance will have a maximum maturity of 10 years at an interest of 4% or less, without prepayment penalties.

This is a high-level summary of the SBA Loans under the CARES Act.  Please contact your bank or credit union for more information.  We are happy to assist you with the application and certification process for the loan and the debt forgiveness.

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