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On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which is designed to provide financial relief to American businesses in response to the economic fallout from the efforts to stem the coronavirus (COVID-19) pandemic. The CARES Act provides direct financial aid to American families, payroll, and operating expense support for small businesses, and loan assistance for distressed industries. 

One of the core pieces of the CARES Act is the provision of hundreds of billions of dollars for small businesses through federally-backed loans under an expanded Small Business Administration (SBA) through a Section 7(a) loan guaranty program called the Paycheck Protection Program and an expanded Economic Injury Disaster Loan program. Congress has designed the programs to make funds available to qualifying businesses quickly through approved banks and nonbank lenders.

Paycheck Protection Program: SBA 7(a) Loans Under the CARES Act

Under the CARES Act, the SBA can now make forgivable loans through the Paycheck Protection Program under Section 7(a) of the Small Business Act. Loans under this program are to be used for payroll costs, mortgages, rents, and utilities for eight weeks.  These are loans from private financial lenders that are guaranteed by the SBA.  As such, businesses should reach out to their existing lenders to inquire about an SBA 7(a) loan.  If a business does not have an existing lender, or the existing lender does not offer the SBA 7(a) loan, the SBA offers a lender match program on its website: https://www.sba.gov/funding-programs/loans (click “Find Lenders”). 

Eligibility:     

Businesses must employ no more than the greater of 500 employees and, if applicable, the size standard set forth in the SBA Small Business Size Standards.

For certain businesses in the accommodation and food service industries, if such business has more than one physical location, the business must employ no more than 500 employees per location and restrictions on affiliated entities are waived. 

If an Economic Injury Disaster Loan (EIDL), as described below, has been granted, a business can also apply for a Paycheck Protection Program loan if the EIDL is used for other purposes.

Applicants must make a good faith certification of the following: (a) the loan request is necessary to support operations due to the uncertainty of current economic conditions; (b) acknowledge that it will use the funds to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments; (c) that it does not have an application pending for a loan under 7(a) for the same purpose; and (d) from February 15, 2020 through December 31, 2020 it has not received amounts under 7(a) for the same purpose. 

Loan Amount:    

Up to 2.5 times average monthly payroll, up to a maximum of $10,000,000, calculated based on average total payroll costs incurred during the year before the loan is made.  For seasonal employers, the period is 12 weeks beginning February 15, 2019 or March 1, 2019, through June 30, 2019 (at the applicant’s discretion).  For employers not in business from February 15, 2019 through June 30, 2019, calculation is based on average total payroll costs incurred from January 1, 2020 through February 29, 2020.  Certain EIDLs will be required to be refinanced as part of this Paycheck Protection loan and, therefore, will be included in the loan amount. 

Use of Proceeds:    

During the “covered period” (February 15, 2020 through June 30, 2020) the proceeds may be used for:

• Payroll costs, which the CARES Act defines as: compensation to employees including salary, wage, commission, cash tips; paid leave; dismissal or separation allowance; group health benefits, including insurance premiums; retirement benefits; state and local payroll taxes; compensation to sole proprietors or independent contractors that is a wage, commission, income, net-earning from self-employment, etc. up to $100,000 per year, prorated for the covered period; and excludes individual employee compensation more than $100,000 per year, prorated for the covered period; certain federal taxes; compensation for employees whose principal place of residence is outside the U.S.; and sick and family leave wages for which a credit is allowed under the Families First Coronavirus Response Act;
• Group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
• Employee salaries, commissions, or similar compensations;
• Payments of interest on mortgage obligations. 
• Rent;
• Utilities; and
• Interest on any other debt obligation incurred before the covered period.

Interest Rate:    

Maximum of 4%. 

Loan Term:    

Maximum of 10 years from the date on which the business applies for loan forgiveness. 

Repayment:    

Deferral on all loan payments for a period of 6 to 12 months; further SBA guidance on loan deferral to come within 30 days of enactment of the CARES Act.

Scott Shimick  (518) 487-7678  SShimick@woh.com  

Leslie Apple  (518) 487-7770  LApple@woh.com

Timothy Morrison  (518) 487-7639  TMorrison@woh.com

Robert Reynolds  (518) 487-7779  RReynolds@woh.com

Vince Valenza  (518) 487-7794  vvalenza@woh.com