Understanding SBA Loan Opportunities Under the CARES Act Amidst COVID-19

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The CARES Act provides $350 billion for small business Paycheck Protection Loans and an additional $10 billion for the existing Economic Injury Disaster Loan program. Colleagues David Miller and Zachary Bailey describe the new Paycheck Protection Loan Program and the existing Economic Injury Disaster Loan Program below. These are complex programs, with regulations still being developed by the Small Business Administration.

CARES Act—Paycheck Protection Program

Summary

  • Each eligible small business (see eligibility requirements below) may receive a loan of up to 2.5 x its average monthly payroll for the year preceding the loan, but not more than $10 million.
  • The loans will be available until June 30, 2020.

Eligibility 

  • Companies with up to 500 employees are eligible.
  • Larger companies are eligible to the extent the applicable SBA size standard for their industry (NAICS code) allows for a greater number of employees.
  • Companies in the Accommodation and Food Services sector (with an industry code that begins with 72) can qualify if they do not have more than 500 employees at any given location.

Uses

  • Loans can be used to cover certain costs of payroll, employee benefits, interest payments, rent and utilities.

Loan Terms

  • Complete payment deferment (including payment of principal, interest, and fees) for six to 12 months.
  • No personal loan guaranty requirement.
  • Loan forgiveness is available for loan proceeds used for permitted costs in the eight weeks after the loan is obtained, all subject to limitations on workforce reductions and other requirements.

Economic Injury Disaster Loans

Summary

  • Small businesses may receive a loan of up $2 million.
  • Individuals operating under a sole proprietorship, with or without employees, or as an independent contractor, may also apply.

Uses

  • Loan proceeds can be used to pay fixed debts, payroll, accounts payable and other business costs.

Loan Terms

  • Interest rate is 3.75% for small businesses and 2.75% for nonprofits.
    Loan term of up to 30 years.
    Personal guaranty is not required on loans up to $200,000.
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