CARES Act: Small Business access to cash
CARES Act: Small Business access to cash
Congress has passed a third round of economic stimulus (CARES Act) that is designed to distribute cash quickly and broadly to allow small businesses to continue paying employees. Called the Small Business Paycheck Protection Program, it is administered by the Small Business Administration (SBA) through guaranteed SBA loans. It substantially loosens the normal qualification requirements and provides a loan forgiveness feature.
Small Business Paycheck Protection Programs
To be eligible, a small business must be in operation on February 15, 2020 and have salaried employees or independent contractors.
When will the SBA loans be available?
Treasury Sec. Steven Mnuchin stated that Small Business Administration loans under the CARES Act will be available starting Friday, April 3rd.
Who Qualifies? The “under 500” rule.
· small businesses with under 500 employees,
· self-employed and sole proprietors,
· non-profits and veterans organizations
· businesses in the accommodation and food services sector with fewer than 500 employees per location.
What can loans be used for?
payroll and payroll-related costs, health benefits, rent, utility, and interest payments on pre-existing mortgage debt. NOTE: payroll costs are capped at $100,000 per worker.
How much can I borrow?
· the amount borrowed is generally equal to 2.5 times the average monthly payroll cost for the prior year.
· maximum amount of borrowing is capped at $10 million
· maximum interest rate of 4%
Particulars of the Loan Program
· collateral and personal guarantees not required
· ability to obtain credit elsewhere is waived
· loans are available to eligible borrowers under the program through June 30, 2020
· origination fees are waived
· payments are deferred by at least six months, but not than one year
· 10-yr payback period for loans not forgiven
· interest capped at 4%
Loan Forgiveness for specific use
· designed to retain employees.
· looks at portion of loan used to fund certain business expenses paid over the 8-week period following start of loan.
· expenses eligible for forgiveness are payroll, interest on mortgage obligations, rent and utility
· The amount that can be forgiven is lowered by reductions in full-time employment and in situations where total salaries and wages fall by more than 25% from the prior year, but this can be corrected by rehiring employees.
Note: the payroll costs cap at $100,000 per worker.
Lenders. Loans in this program will be provided by over 800 private lenders who are current participants in the SBA 7(a) program, although it is expected that the number of lenders will be expanded to meet the expected volume.
How to find a lender in your area
The SBA is working on a list of lenders in each state and locale for application filing.
Economic Injury Disaster Loan (EIDL)
For those in COVID-19 federally declared disaster areas, this program was implemented in early March to provide low-interest loans to small business and non-profits:
· $2,000,000 max on borrowing
· can be approved based solely on credit score
· interest rate 3.75%
· under $200,000 doesn’t require personal guarantee
· long payback period
· SBA is the direct contact for EIDL loans
· $10,000 advance within three days after the Administrator receives the application, subject to verification that the entity is eligible under this program
https://www.sba.gov/funding-programs/disaster-assistance
What if I have an existing loan under the SBA Economic Injury Disaster Loan (EIDL) program?
Tell your lender. EIDL loans can be rolled into a new, bundled loan.
