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CARES Act in-depth

CARES Act in-depth

CARES Act as of 3/26/2020

SBA Loan 7(a) Changes to Eligibility and Uses

SBA is authorized to guarantee up to $349 billion in 7(a) loans to businesses with not more than 500 employees

The loan period for this program would begin on February 15, 2020, and end on December 31, 2020.

There is no requirement to evaluate the borrowers’ ability to repay the covered loan or that the borrower not be able to find credit elsewhere, unlike the normal 7(a) requirements.

Eligible borrowers would be required to make good faith certification that they have been affected by COVID-19 and will use funds to retain workers and maintain payroll and other debt obligations.

Eligibility evaluations are to be limited to whether a business or certain non-profits was:

Operational on February 15, 2020, and

Had employees for whom the borrower paid salaries and payroll taxes, or paid independent contractors, and

Is substantially impacted by public health restrictions related to COVID-19.

Loan Amounts:

Lesser of (i) $10 million or (ii) the business’s average total monthly payroll costs during the one-year period prior to the loan being made multiplied by 2.5.

Payroll costs include salaries, wages, tips, payments for sick leave, insurance premiums and state and local taxes assessed on the compensation of employees, but does not include compensation of individual employees in excess of annual salary of $100,000, as prorated for the relevant period.

The loan proceeds may be used to cover payroll costs, mortgage, rent and utility payments, and interest on other debt obligations incurred prior to February 15, 2020.

Deferment: A complete deferment of 7(a) loan payments would be allowed for not more than one year and would require SBA to disseminate guidance on the deferment process within 30 days.

Loan Forgiveness.

Borrowers will be eligible to apply for loan forgiveness equal to the amount spent by the borrower during an 8-week period after the <strong>loan closing date on payroll costs, interest on mortgages, payments of rent, and utility payments, in each case that were in place before February 15, 2020. </strong>

Principal payments of mortgage payments will not be eligible for forgiveness.

The amount forgiven is reduced proportionally by any reduction in employees retained compared to the previous year and by the reduction in pay of any employee beyond 25 percent of the prior year’s compensation; however, reductions in pay for employees who have an annualized salary of more than $100,000 are not considered in this calculation.

Borrowers which re-hire workers previously laid off from February 15 through April 1, 2020 shall not have those numbers counted against them during such period for loan forgiveness purposes, so long as they are rehired by June 30, 2020.

Cancelled indebtedness shall not be included in the borrower’s taxable income for this year

The amount forgiven would be reduced in proportion to any reduction in employees retained compared to the prior year and to the reduction in pay of any employee beyond 25% of her prior year compensation.

Other Parts of the Act

Direct payments of $1,200 to most individuals making up to $75,000, or $2,400 for couples making up to $150,000. Each dependent child increases the amount by an additional $500. The amount decreases for individuals with incomes above $75,000, and payments cut off for those above $99,000.

Expanded unemployment benefits that boost the maximum benefit by $600 per week and provides laid-off workers their full pay for four months. Eligibility is extended to independent contractors and the self-employed.

Student loan borrowers allowed to put off paying their federal student loan payments without penalty until September 30, 2020.

$367 billion in loans for small businesses

$150 billion for state and local governments

$130 billion for hospitals

$500 billion in loans for larger industries, including $25 billion for passenger airlines; $4 billion for carriers; $3 billion for aviation contractors and $17 billion for ``businesses critical to maintaining national security.

Creation of an oversight board and inspector general to oversee loans to large companies

Measure prohibiting companies owned by President Trump and his family from receiving federal relief

$25 million for the John F. Kennedy Center for the Performing Arts

$400 million for election security grants

Small Business Administration: Economic Injury Disaster Loan Assistance

Small business owners in all U.S. states, Washington D.C., and territories are currently eligible to apply for a long term low-interest loan due to Coronavirus (COVID-19).

The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.

Requirements:

The maximum interest rate for this program is 3.750 percent

Economic injury disaster loans cannot be used to refinance long term debts

For expedited loan application processing, the business must have been operating for at least one year prior to the disaster.

Application Filing Deadline: December 21, 2020

Other Parts of the Act

New York City Employee Retention Grant Program

Small businesses with one to four employees can apply for a grant of up to $27,000 that covers 40% of payroll costs over the course of two months. You must show that you lost 25% of your revenue due to the coronavirus. Refer to New York City’s coronavirus resource page for small businesses for more information.

Who’s eligible: Businesses must be located in one of New York City’s five boroughs, have been operating for six months or more and have no current tax liens or legal judgments.

How to apply: Apply online through the New York City Department of Small Business Services website. You’ll submit financial documentation showing your revenue decrease and how it compares to this time last year, plus payroll records and bank account information.

New York City Employee Retention Grant Program

If your business has fewer than 100 employees, you can get up to $75,000 in interest-free loans from the city to cover revenue losses.

Who’s eligible: Businesses within the five boroughs that have experienced at least a 25% reduction in revenue can qualify. You must have no tax liens or legal judgments against you, and you must prove a loss in revenue and that you are able to repay the loan.

How to apply: Applications aren’t yet open, but fill me out an interest form on the New York City Department of Small Business Services website to get more information when it’s available. In the meantime, gather documents that show your decrease in revenue including 2019 tax returns, bank statements and point-of-sales reports.