Last updated on 4/3/2020 with:
Update: Payment Protection Program application form and FAQs
The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, passed the Senate on March 25, the House on March and signed by President Trump on March 27. There are several aspects that affect a range of beneficiaries such as small businesses, large corporations and individuals. This post will be focusing on the small business side of the CARES Act. Please note that the below information is subject to change as updates come in.
$2 trillion dollars is the amount that makes up the coronavirus response bill to help relief the American economy. $367 billion are destined to small businesses; this is then subdivided in $350 billion on new loans and $17 billion destined for existing loans.
These loans will be classified under type 7(a) loans category, which is the primary program for providing financial assistance to small businesses.
There are 2 key features that are essential to small businesses:
- Paycheck Protection Program: $350 billion will be distributed by the Small Business Administration to provide loans of up to $10 million dollars per business. Portions of that loan maybe forgiven provided workers stay employed. Some of such forgivable loan portions would include salaries, paid sick and medical leave, mortgage interest, rent and utility payments for an 8-week period.
- Existing Loan Relief: There is a $17 billion dollar provision in which SBA is required to pay all principle, interest and fees on all existing SBA loan products, including 7(a), Community Advantage, 504 and Microloan programs for six months.
The CARES Act defines who is eligible for relief as businesses, nonprofits, veteran’s organizations and tribal businesses of up to 500 employees and it also includes the self-employed, independent contractors and sole proprietors. Some businesses that have more than 500 employees may be eligible under the SBA industry size standard allowance.
Find the SBA’s table for Small Business Size Standards here.
For lenders to determine eligibility, small businesses must demonstrate that they were operational as of March 1, 2020 and had employees for whom it paid salaries and payroll taxes. This requirement was included as it is not possible to determine repayment ability during the crisis.
From what we have gathered in the Bank of America portal, banks may ask for other requirements unique to them. This is a subject that is still up in the air, but it is important to call or check your local bank’s website to see what requirements are listed.
Economic Injury Disaster Loans
The CARES Act impacts the Economic Injury Disaster Loans (EIDL) program. It calls for expedited access to capital by allocating $10 billion so that businesses that have applied to EIDL loans can request an advance of up to $10,000. These funds would be used for paid sick leave, maintaining payroll and covering other business operations.
As we wait for the CARES Act to have a formal application guideline, we can assume that the application process will be similar to that of other SBA loans.
For a detailed guide on the CARES act please visit the U.S. Senate Committee on Small Business and Entrepreneurship’s guide for small business owners here: Small Business Owner’s Guide to the CARES Act
You can help your business by using the the checklist made by the Chamber of Commerce and by contacting your local banking institution. Find the guide and checklist here: Coronavirus Emergency Loans Small Business Guide and Checklist.
You can help yourself prepare by using this checklist from the Chamber of Commerce and contacting your local lender.
Payments and Fees
CARES Act waives both borrower and lender fees on all 7(a) loans, it also creates an automatic deferment of payments up to one year, and no prepayment penalties.