On Friday the $2TRILLION Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. People are still digging through the legislation to understand exactly how this 883page bonanza of a spending bill might affect them.

One thing is clear, congress is looking to drop an unimaginable amount of cash out the door and fast. I don’t remember the last time Congress passed a law that offered benefits to one of my businesses, but this one does.

If you’re a small business owner, you should take a serious look.

To point you in the right direction, below you’ll find a note I just received from my accountants.

Matt,

Below is a summary of the small business loan provisions in the CARES Act, which has now been signed into law.

What this section provides is a very substantial benefit for small businesses that do not lay off employees during this crisis.  Not only can the small businesses obtain loans that are not guaranteed by individuals, but the loans may be forgiven if certain requirements are met.

The CARES Act utilizes the SBA 7A loan program to make or guarantee the loans to be made under the act.

Most, if not all of the loan will be forgiven, so it will really be more of a “grant” than a loan, and it can be used to cover payroll, rent and other costs, and the amount of the loan that is forgiven will not be income!

SUMMARY OF THE CARES Act PROVISIONS

Small Business Administration (“SBA”) Loans

• Small businesses and non-profits with no more than 500 employees (per physical location) are eligible to receive an SBA loan of up to $10 million (exact amount is tied to payroll costs).

• Number of employees includes both full-time and part-time.

• Covered loan period is between February 15, 2020 and June 30, 2020.

• Loans may be used for wages, payroll costs, paid leave, costs related to the continuation of group health benefits, mortgage payments, rent, utilities, and interest on other debts.

• Loans are available for certain sole proprietors, independent contractors, and self- employed individuals; must provide documentation such as payroll tax filings, 1099s, and income and expenses.

• No collateral or personal guarantees are required.

• Some loans may be eligible for forgiveness to the extent of the borrower’s payroll costs, mortgage interest, rent, and utility payments made during an 8-week period after loan origination date.

• Amount of loan forgiveness is reduced to the extent employees are laid off or salaries are reduced by more than 25%.

• Borrower who rehire employees previously laid off will not be penalized for having reduced payroll at the beginning of the period.

In short, small businesses should be applying if they have been impacted by the COVID virus. 

The loans will have no interest/principal payments for up to 1 year, could be fully forgiven, no fees, no personal guarantees, no collateral, and the Lenders have no risk. 

The risked-based capital requirements are zero and the FDIC, FASB and other disclosure issues are lifted for the lenders. 

The Lenders may not be required to do a comprehensive underwriting and simply verify two eligibility items in the Act

(1) borrower was in operation on February 15, 2020 and

(2) had employees for whom the borrower paid salaries and payroll taxes.  The SBA Express loan amount has been increased to $1 million – so many businesses can likely get funding quickly.  The Treasury and Federal Government wants to get this $350 billion in the economy fast!

A small business wanting to apply for the 7(a) Paycheck Protection Program would do the following:

1. Calculate “Payroll costs” from March 2019 to February 2020 and get an average. 

2. Determine the loan amount by taking 1 multiplied times 2.5

3. Contact their Bank and ask for the SBA Lending Department indicating they want to apply for the SBA 7(a) Paycheck Protection Program.  Banks, Credit unions and other authorized financial institutions are taking and funding these loans not the SBA.  The Act is fully guaranteeing these loans and enabled the SBA to have the funding for the loan principal, pay the fees and interest to the banks processing these loans.

The loans can be forgiven with no tax impact!  The forgiveness portion of the Act is tricky reading and small businesses will need to be diligent about tracking the components and having “proof” of payment to get the maximum forgiveness.  Not a biggie and worth the time and effort

Since this law was just passed yesterday afternoon I am not sure what banks are set up and ready to implement this program but they will have to get going fast.

I will continue to forward info as I get it.

Kind regards,

A

UPDATE: 04/01/20

Forms required for the Payroll Protection Program:

PPP Program Overview

Borrower Information Fact Sheet - Who Qualifies

Borrower Application Form

List of the most active SBA 7(a) Lenders

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