We are advising our business owner clients and friends that are in need of working capital and/or considering furloughs or layoffs of the pending SBA loan program for disaster relief. These loans (likely to be funded up to $300 Billion with a maximum loan amount of $10 Million) are part of the Large Stimulus Package now being finalized by Congress. The loans are for debt obligations (payroll, rent, etc.) and will be forgivable in an amount equal to payroll costs and costs related to debt obligations for the period between 3/1/20 and 6/30/20. The amount of forgiveness will be reduced proportionally by the number of employees laid off during this time, and it will also exclude employees making in excess of $100k from this “forgiveness” calculation.
This is a loan program that could benefit many small- and medium-sized businesses. We expect the legislation authorizing the SBA loan program to be passed by Congress within the next few days.
The details of the program are summarized below.
On March 19, 2020 the Congressional Small Business Task Force unveiled a $300 Billion Emergency Coronavirus Relief Package as part of the Keeping Workers Paid and Employed Act, Division A of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). This relief package includes:
- $300 billion in lending authority for SBA 7(a) loans.
- Borrowers can get this SBA 7(a) loan OR an EIDL (direct SBA disaster loan), but not both.
- Loan sizes of up to $10M, calculated by taking the average total monthly payments by the applicant for payroll, mortgage payments, rent payments, and payments on any other debt obligations incurred during the one-year period before the date on which the loan is made (except for applicants with seasonal employees, in which case the payroll is based on the average total monthly payments for payroll from 3/1/19 through 6/30/19).
- Loan proceeds are only for payroll support including medical leave, costs related to health benefits, employee salaries, mortgage payments, rent, utilities, and any other debt payments incurred before the covered period. These relief loans are not eligible for business acquisitions, real estate purchases, or other typical 7a loan proceeds.
- 100% government-guarantees on these SBA relief loans made through 12/31/20.
- Available for currently eligible SBA borrowers and not-for-profits.
- Delegated (underwriting) authority will be made for SBA participating lenders to expedite loan processing.
- Borrower guarantee fees will be waived.
- Provides a “process” (TBD) by which borrowers will be eligible for loan forgiveness in an amount equal to their payroll cost and costs related to debt obligations for the period between 3/1/20 and 6/30/20. The amount of forgiveness will be reduced proportionally by the number of employees laid off during this time, and it will also exclude employees making in excess of $100k from this “forgiveness” calculation.
- Lenders must verify payroll costs.