Key Provisions of the Coronavirus Aid, Relief and Economic Security Act (CARES)March 27, 2020
The Coronavirus Aid, Relief, and Economic Security Act also known as the “CARES” Act has many provisions to assist impacted companies.
In this summary we will look at loan programs that will be available. Please note there are other programs available and early indication is that you will not be able to benefit from certain provisions within the CARES Act and the SBA Economic Injury Disaster Loan program simultaneously. However you are not precluded from applying for benefits under the various programs and then committing to the benefit that provides you the best solution for your business. Additionally the various parameters of these programs may change upon the finalization of the CARES Act.
Paycheck Protection Program
- Overview – This is a loan program designed for businesses impacted by COVID-19 such that a component of the amount received may be forgiven. Not all amounts can be “forgiven”. Important to note is that these “loans” will be administered through the SBA’s existing lender network of banks/credit unions. This means that you should contact your lending institution and ask to be notified as soon as the program is available.
- Eligibility – Small businesses (less than 500 employees), self-employed, individuals, and nonprofit organizations.
- Limits – The size of the loan is limited to the lessor of 2.5 times (250% of) the employer’s average monthly payroll during the one year period before the loan is taken or $10,000,000. Covered payroll costs include salary/wages/cash tips (up to $100,000 per employee), and employee benefits (health insurance, 401K, etc.).
- Proceeds – The loan can be used for payroll costs, benefits (health insurance, etc.), interest payments on mortgages, rent, utilities, and interest on debt obligations incurred before February 15, 2020.
- Collateral – There is no personal guarantee or collateral required. No recourse unless the loan proceeds were not used on eligible expenditures.
- Loan forgiveness
- The forgiveness amount will be for any amounts paid for payroll costs, interest portions of mortgage payments, rent payments and utility payments during the 8 week period after the loan begins.
- The loan amount that may be forgiven will be reduced if there is a reduction in employee count or wages after receiving the loan when compared to employee count or wages for certain periods prior to February 29, 2020.
- You will need to provide documentation to the lender for payroll and other eligible expenses.
- Amounts forgiven will not be subject to interest or be taxable.
- Excess amounts remaining after forgiveness are converted to a loan.
- 2 year maturity from date of original disbursement.
- Interest rate 1%.
- First payment is due 6 months from loan date.
SBA Economic Injury Disaster Loans
- Overview – Apply at sba.gov.
- Eligibility – Businesses and nonprofit entities located in SBA-declared disaster areas.
- Limits – The size of the loan may be up to $2,000,000.
- Proceeds – The loan can be used for business expenses, debt payments, payroll and most other obligations incurred in the normal course of business.
- Collateral – the first $25,000 of the loan is unsecured. Additional amounts are subject to collateral requirements and personal guarantees.
- Repayment provisions.
- Up to 30 years
- Interest rate 3.75% (2.75% for nonprofits).
- First payment is due up to one year from loan date.
- For eligible businesses applying for Economic Injury Loans, they will be able to request an immediate emergency grant of $10,000. The timeline for payment is 3 days after the application for the loan.
- Not required to be paid back, even if the loan is subsequently denied.
- Funds have to be used for payroll/rent/mortgage.
Existing Loans and SBA Loans
- Many banks and lending institutions are allowing for the deferment of principal and interest payments for up to a six month period. Please contact your lending relationship manager to discuss.
- The SBA will make payments on behalf of all existing SBA loans for the next six months. This is not a deferral, the SBA will be making the payments on these loans for the next six months starting with the next payment due after the bill is passed. Additionally, deferments of payments due on these loans after this six month period of the SBA making payments may also be available. Please contact your bank or your certified development company to confirm eligibility.
Navigating through all of the information and programs available to impacted businesses may be overwhelming. KLR advisors are available to assist you navigate the best path forward during this unprecedented crisis. With a completely remote workforce our advisors are always available.
Visit our Coronavirus Resource Center for more information.