Prepared by Lisa F. Harper

Download This Guide: Terms of Business Loans under the Cares Act

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was passed by the U.S. Senate on Wednesday night, March 25. As of this writing at 1:35 on March 27, 2020, the CARES Act was just approved by the U.S. House of Representatives and is on its way to the President. A general summary of the most relevant provisions regarding the loan available under it is provided below:

1. Who is Eligible:

a. Employers of 500 employees or fewer

a.i. Employee count based on full time, part time or any other basis; it is a head count, not a full time equivalent count as is used in other federal laws.
a.ii. Limit applies per locations for businesses under NAICS Code 72 which are comprised of businesses providing lodging and/or preparing meals, snacks, and beverages for immediate consumption.
a.iii. There is also a waiver of the SBA rules re: combining of companies who are under common control or deemed affiliated for NAICS Code 72 businesses and for business operating as a franchises (which have franchise identifier codes).
a.iv. Waiver of the credit elsewhere test, i.e. it does not matter whether you could get credit elsewhere.
a.v. No personal guaranty requirement.
a.vi. No recourse against business owners unless loan such owner allows use of the proceeds for an unauthorized purpose.

b. Lender Considerations :

b.i. Whether the business was in operation on February 15, 2020;
b.ii. Whether the business had employees for whom the business paid salaries and payroll taxes or paid independent contractors on a Form 1099.
b.iii. Whether the Borrower has certified that:

b.iii.1. Uncertainly of economic conditions makes the loan request necessary to support ongoing operations;
b.iii.2. Funds will be used to retain workers and maintain payroll, make mortgage payments, lease payments and utility payments;
b.iii.3. The business does not have a duplicate application pending for the same purpose under these provision; and that
b.iii.4. The business has not received payments under these provisions for the same purpose.

2. How Much Can a Business Get:

a. Loans are for the covered period which means February 15, 2020 through June 30, 2020.
b. For businesses that were in business in February 2019, the amount to is the lesser of

b.i. $10 million dollars or
b.ii. the average monthly payroll costs incurred for the 1 year period prior to the date the loan is made multiplied by 2.5 plus

b.ii.1. the amount of any outstanding SBA loan made after January 31, 2020 and the date the new loan is made available – but it does not appear to include a refinance of loans made by the SBA for the same purpose as the new loans.

c. For businesses that were not in business for the period from February 15, 2019 through June30, 2019 , the amount is the lesser of
c.i. $10 million dollars or
c.ii. the average monthly payroll costs incurred for the period between January 1, 2020 and February 29, 2020 multiplied by 2.5 plus

c.ii.1. the amount of any outstanding SBA loan made after January 31, 2020 and the date the new loan is made available – but it does not appear to include a refinance of loans made by the SBA for the same purpose as the new loans.

d. Payroll costs means:

d.i. Salary, wages, commissions or similar compensation;
d.ii. Cash tip or equivalent;
d.iii. Payment for vacation, parental, family, medical or sick leave;
d.iv. Payment doe dismissal or separation;
d.v. Payments for group health insurance benefits, including premiums;
d.vi. Payments for any retirement benefits;
d.vii. Payment of state or local tax on compensation of employees;
d.viii. Payments related to sole proprietors and independent contractors that are wages, commission, income, or net earnings from self-employment up to $100,000 prorated for the covered period.

e. Payroll costs does not include things such as:

e.i. Compensation to any individual employee in excess of $100,000, as prorated for the covered period.
e.ii. OASDI (Social Security), RR Retirement and federal taxes on income.
e.iii. Compensation of employees who do not reside in the U.S.

3. Repayment:

a. Forgiveness of Loan:

a.i. Portions eligible for forgiveness

a.i.1. Payroll costs
a.i.2. Payment of interest on a covered mortgage (does not include prepayment or payment of principal)
a.i.3. Payment of covered debt;
a.i.4. Payment of covered utilities.

a.ii. Forgiveness cannot exceed amount the loan.
a.iii. Forgiveness reduced by things such as:

a.iii.1. amounts received in payroll tax credits or otherwise compensated under the Families First Act.
a.iii.2. reduction in compensation of any employee greater than 25%;
a.iii.3. reduction in number of full time equivalent employees compared to the period from February 15, 2019 through June 30, 2019 but the reduction will not reduce forgiveness for termination of an employee made between February 15, 2020 and April 26, 2020 provided that the employee is rehired by June 30, 2020.

b. Repayment of Balance:

b.i. Deferment of payments for at least 6 months but not longer than a year.
b.ii. To be paid over 10 years
b.iii. Rate not to exceed 4%
b.iv. No prepayment penalty