CLIENT ALERT –
** CARES Act **
Loan Relief and Strategic Opportunities for Small and Medium-Sized Businesses
KEY FEATURES:
Payroll Protection Program (PPP) – Section 1102
- Businesses with 500 employees or less (unless the covered industry’s SBA size standard allows more than 500 employees), including sole-proprietors, independent contractors, eligible self-employed persons and 501(c)(3) nonprofits.
- Loan amounts up to $10 million through December 31, 2020.
- Allows complete deferment of 7(a) loan payments for not more than one year and requires SBA to disseminate guidance to lenders on this deferment process within 30 days.
- Covers employees making up to $100,000 per year; loans taken for these purposes are forgiven if the business does not lay off its employees (forgiveness is scaled down as layoffs rise).
- Covered period for payroll February 15, 2020 – June 30, 2020.
- No fees collected from lender or borrower, forgoes the “can’t get credit elsewhere requirement.”
- No collateral, no personal guarantee required.
- Maximum loan maturity of 10 years from the date on which the borrower applies for the loan.
- Interest rate cannot exceed 4%.
- Lender must provide complete payment deferment relief for impacted borrower.
- Can be used for:
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- Payroll costs, continuation of group health care benefits during of periods of paid sick leave, medical and family leave and insurance premiums.
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- Employee salaries, commissions, tips and similar compensation.
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- Mortgage payments, rent, utilities, interest on any debt obligations that were incurred before the covered period.
Changes to Economic Injury Disaster Loans (EIDL) – Section 1110
- Economic Injury Disaster Loans (EIDL) are now available for virtually all businesses with fewer than 500 employees, and notably, sole proprietors, independent contractors and self-employed individuals, during the covered period (January 31, 2020 to December 31, 2020). Private non-profits are also eligible for both grants and EIDLs.
- For any SBA EIDL loans made in response to COVID-19 before December 31, 2020, the SBA shall waive any personal guarantee on advances and loans below $200,000, the requirement that an applicant needs to have been in business for the 1-year period before the disaster, and the “credit elsewhere” requirement.
- During the covered period, allows SBA to approve and offer EIDL loans based solely on an applicant’s credit score, or use an alternative appropriate alternative method for determining applicant’s ability to repay.
- Establishes an Emergency Grant to allow an eligible entity who has applied for an EIDL loan due to COVID-19 to request an advance on that loan, of not more than $10,000, which the SBA must distribute within 3 days.
- Requires that an advance payment be considered when determining loan forgiveness, if the applicant transfers into a loan made under SBA’s Paycheck Protection Program.
If you have questions about this Client Alert, please contact one of our attorneys for additional information or to schedule a consultation.