CARES Act and Emergency SBA Loan Program

We are all closely monitoring the CARES Act, especially the Emergency SBA 7(a) loan program. We understand the House just passed the Bill and the President is expected to sign it by the end of the day.

The CARES Act, aka the Payroll Protection Act, provides for loans of up to 2.5 times your average monthly payroll over the previous twelve months. Covered compensation is capped at $100,000 per employee for purposes of calculating your eligible payroll. The funds can be used to pay for payroll and facility costs, including:

  • Payroll

  • Payroll costs such as taxes and insurance

  • Mortgage indebtedness that existed as of 2/15/2020

  • Rent obligations that existed as of 2/15/2020

  • Utilities

An SBA 7(a) loan can be forgiven if an organization maintains or rehires staff for eight weeks after the closing date of the loan. If total payroll is reduced, the amount of the loan forgiveness would also be reduced.
 
Other features of the SBA 7(a) loan program are:

  • No personal guarantees

  • No collateral requirements

  • No double dipping by participating in other SBA disaster relief loan programs

  • Unforgiven portions of the loan are repayable over 10 years at a maximum interest rate of 4%, with no payments for a year

  • Applications can be made through any SBA lender

  • Applications will be accepted through 12/31/2020

  • Two years tax returns and 12/31/2019 financial statements must accompany the loan application

  • If you have an existing SBA loan, debt service on that loan will be waived for one year

  • You may apply for an SBA 7(a) loan and a disaster relief loan of up to $2M, but you may only receive funding from one of the two programs

  • Stock buy-backs, dividends and officer bonuses are prohibited uses of the loan proceeds

We are sure there are other features, provisions and requirements of the loan program, but these are the ones we believe will be most relevant to you. The National Council of Nonprofits in DC is a valuable resource and it has a good summary of the Act (see the below link).
 
https://www.councilofnonprofits.org/trends-policy-issues/initial-analysis-of-the-coronavirus-aid-relief-and-economic-security-act-cares
 
For most nonprofits, these SBA 7(a) loans will be a much better option than the emergency SBA loans that were approved for Georgia small businesses and nonprofits last week. Those previously announced SBA loans, which could cover up to $2 million to pay fixed debts, payroll, accounts payable, and other bills that cannot be paid because of the disaster’s impact,) carry a 2.75% interest rate for nonprofits (lower than the 3.75% rate for small for-profit businesses), but are not forgivable.  More information about these disaster relief loans can be found at U.S. Small Business Administration.

Please let us know if you have any questions.  An SBA Lender will be in a better position to answer your specific questions about the loan provisions of the CARES Act once all of the details of the program are made available next week.

This is a constantly evolving situation and we are diligently working to stay on top of the details.  Please keep checking back here for our most recent updates or sign up for our newletter and email blasts.

~~Bliss Jones~~
 

Tax & Regulation AlertsDebbie Harry