On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) was passed. The CARES Act is an unprecedented stimulus package that releases over three hundred thirty billion dollars of federal funding to help maintain and boost the economy by supporting American businesses. For small businesses in particular, this historic stimulus package includes two important provisions:
- Small Business Paycheck Protection Program
- The “Paycheck Protection Program,” issues loans up to $10 million to existing small businesses with interest rates capped at 4%.
- These paycheck protection loans may be used to cover business costs, including payroll costs (pro-rated based on a maximum employee annual salary of $100,000), employee benefits and leave, mortgage interest payments, debt refinancing, rent and utilities.
- To qualify for paycheck protection loan:
- The business must have no more than 500 employees, or the maximum number of employees specified in the Small Business Administration (SBA) standards, whichever number is greater; or
- The small businesses is in the accommodation and food services industry and they have no more than 500 employees per physical location; or
- The small business is a franchisee holding a franchise listed on the Small Business Administration’s registry of approved franchise agreements; or
- The small business has received financing from small business investment corp.
- Sole proprietorships, self-employed individuals, and certain nonprofit organizations may also be eligible under this new stimulus package.
- The Act waives the personal guaranty requirement typically associated with Section 7(a) loans, as well as the requirement for applicants to demonstrate that they are unable to obtain credit from other sources and the loans are non-recourse to the borrow.
- The Act requires that eligible small business borrowers make good faith certifications that they have been impacted by COVID-19 and will use the loan funds to retain workers and maintain payroll and other debt obligations.
- Small Business Paycheck Protection Loan Forgiveness Provision
- One key aspect of the small business paycheck protection loan is that it is forgivable.
- A small business borrower can have the loan forgiven, in an amount equal to the sum of 1) payroll costs ($100,000 per employee), 2) mortgage interest, and 3) rent and utilities, in each case, for up to eight weeks following the issuance of the loan.
- The small business borrower will need to provide documentation proving the loan was used to pay for the things stated above.
- The amount forgiven under the Act is not considered taxable income.
- SBA Economic Injury Disaster Loans (“EIDL”)
- This provision of the Act contains provisions related to SBA’s existing EIDL program.
- EIDL’s are made directly to small businesses who have suffered economic injury as a result of a disaster such as COVID-19.
- EIDL’s can be used to assist a small business in paying for things such as payroll, mortgage and rent payments, utilities, and other necessary operating expenses that cannot be paid because of the impact of COVID-19.
- EIDL interest rates are capped at 3.75% for small businesses and 2.75% for private nonprofits with up to a 30-year term.
- EIDL’s are not forgivable and under the Act.
- Further a small business borrower that was issued a paycheck protection loan to be used for payroll support, mortgage payments, and other business debt obligations would not be able to obtain an EIDL for the same purpose or co-mingle funds from another loan for the same purpose.
The attorneys at Kelli Haas & Associates are working hard to assist their clients and keep them informed during these uncertain times. KHA will continue to monitor and keep you apprised of any relevant new developments as they occur. You can call us anytime at (615) 557-7300 or by email to kelli@khalawgroup.com or michael@khalawgroup.com.
