Coronavirus Emergency Loans Now Available for Small Businesses
by Mandy Hicks
The federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on Friday, March 27, 2020, allocated $350 billion in Small Business Administration (“SBA”) loan guarantees and subsidies, and provides additional funding for SBA programs to help small businesses keep workers employed during this unprecedented pandemic and economic downturn.
Most notably, the Act expands SBA’s existing 7(a) Loan Program to include a Paycheck Protection Loan program. Loans under this program are a new alternative to existing SBA loan programs, such as SBA’s economic-injury disaster-assistance loans, and include a loan forgiveness component not available under the prior loan programs.
Eligible businesses and non-profits may apply for loans under the Paycheck Protection Loan program to cover payroll and certain operating costs for a limited period of time, and these loans may be forgiven, all or in part, if borrowers maintain employment levels during the crisis. SBA is expected to release additional guidance including the list of lenders who will be partnering with SBA to issue loans under the program. In the meantime, ELPO Law can assist small businesses and non-profits in determining if the Paycheck Protection Loan program applies to them.
Businesses and non-profits who are affected by the COVID-19 pandemic and interested in participating in the Paycheck Protection Loan Program should consider these key takeaways from the CARES Act:
1. Who is eligible for a loan under the Paycheck Protection Loan Program?
The following entities may be eligible:
• A small business with fewer than 500 employees
• A small business that otherwise meets the SBA’s size standard
• A 501(c)(3) with fewer than 500 employees
• An individual who operates as a sole proprietor
• An individual who operates as an independent contractor
• An individual who is self-employed who regularly carries on any trade or business
• A Tribal business concern that meets the SBA size standard
• A 501(c)(19) Veterans Organization that meets the SBA size standard
In addition, some special rules apply for other entities:
• For businesses in the accommodation and food services sector (NAICS 72), the 500-employee rule is applied on a per physical location basis.
• For businesses operating as a franchise or receiving financial assistance from an approved Small Business Investment Company, the normal affiliation rules do not apply.
The 500-employee threshold includes all employees: full-time, part-time, and any other status.
2. What are the requirements to apply?
In evaluating eligibility, lenders will consider whether the borrower was in operation before February 15, 2020, had employees for whom they paid salaries and payroll taxes, or made payments to independent contractors.
Lenders will require a good faith certification that:
• The uncertainty of current economic conditions makes the loan request necessary to support ongoing operations.
• The borrower will use the loan proceeds for permitted uses including retaining workers, maintaining payroll and paying certain operating expenses.
• Borrower does not have an application pending for a loan duplicative of the purpose and amounts applied for here.
• From Feb. 15, 2020 to Dec. 31, 2020, the borrower has not received a loan duplicative of the purpose and amounts applied for here (Note: There is an opportunity to fold emergency loans made between Jan. 31, 2020 and the date this loan program becomes available into a new loan).
For independent contractors, sole proprietors, or self-employed individuals, lenders will also require certain documents such as payroll tax filings, Forms 1099-MISC, and income and expenses from the sole proprietorship. Additional guidance is expected to be released.
3. How much can affected businesses or non-profits borrow?
Loans may be made up to 2.5 times the borrower’s average monthly payroll costs, not to exceed $10 million.
4. What portion of the loans will be forgiven?
Certain borrowers will be eligible to have all or a portion of the loan forgiven in an amount equal to how much the borrower spent on the following items during the 8-week period beginning on the date of the origination of the loan:
• Payroll costs (using the same definition of payroll costs used to determine loan eligibility)
• Interest on the mortgage obligation incurred in the ordinary course of business
• Rent on a leasing agreement
• Payments on utilities (electricity, gas, water, transportation, telephone, or internet)
• For borrowers with employees who receive tips, additional wages paid to those employees
The loan forgiveness cannot exceed the principal amount of the loan.
The ELPO Law Business Law Group is closely monitoring the latest developments and business impacts related to the COVID-19 outbreak. Working together as a team of attorneys from across the firm representing Employment, Banking, Tax, Real Estate and other practice areas, we are ready to advise you on the full range of issues that are most relevant to you businesses right now, especially as it relates to the business impacts of these loans.
Our Business Team assembled specifically for this cross-functional purpose includes ELPO Law attorneys: Mike Vitale, Nathan Vinson, Heather Brooks, Catherine Clemons, and Joye Beth Spinks.
We will continue to provide updates on developments that are critical to your continued success. In the meantime, our Business Law Team can be reached at 270-781-6500.