Any Port in a Storm: The CARES Act Provides Funds to Help Your Small Business Stay Afloat
Friday afternoon, Congress approved the Coronavirus Aid, Relief and Economic Security Act (or CARES Act). In part, the CARES Act moves $350 billion to the Small Business Administration (SBA) to underwrite a loan program aimed at helping small businesses make payroll and cover operating expenses. The section of the CARES Act outlining this small business loan program is being commonly referred to as the Paycheck Protection Program. The Paycheck Protection Program will be administered by SBA.
Loans made under the Paycheck Protection Program will only be available through June 30, 2020. Loans will be styled as Economic Injury Disaster Loans (EIDL) under Section 7(a) of the Small Business Act. The Program is intended to provide borrowers with cash flow assistance during the emergency caused by the Covid-19 crisis. Key elements of the Paycheck Protection Program include:
- Businesses and many non-profits employing 500 or fewer persons will be eligible to participate
- Proceeds from EIDLs may be used for payroll support, employee salaries, mortgage payments, rent, utilities and other debt obligations incurred prior to the onset of the pandemic
- Loan amounts will be capped at the lesser of 250% of a borrower’s average monthly payroll costs for the 12 months preceding the date of the loan and $10 million
- Borrowers may apply for an emergency advance of up to $10,000 which the SBA will distribute on an expedited basis while EIDL loan applications are processed
- Interest rate will be capped at 4%
- Maturities will be up to 10 years
- Loans will be made available through SBA-certified lenders and be guaranteed by the SBA
- Fees to establish loans will be waived as will any penalties for prepayment
- For employers that retain and continue to pay their employees through June 30, 2020, the portion of the loan used to cover payroll and payments on pre-existing debt will be forgiven.
The Act also offers relief to borrowers with existing 7(a) or 504 loans. For these loans, the SBA will cover principal, interest and any fee payments due for a six-month period beginning on the date of the next payment comes due.
The window to participate in the Paycheck Protection Program is limited. Given the size and scope of the Program, there will be challenges in administering it. The hope is that the SBA and SBA-certified lenders will be ready to process applications as early as the end of next week. The business attorneys at Tuesley Hall Konopa are ready to help navigate the Economic Injury Disaster Loan process and help you determine whether the Paycheck Protection Program may be a good solution for your business needs.
Contact our business legal team with your questions at 574.232.3538. We are open 8 a.m. to 5 p.m. Monday through Friday, and all our attorneys are available to assist you via phone and virtual meetings.
Author: Pete Gillin is a seasoned transactions attorney whose experience includes advising middle-market and closely-held businesses. Practice areas include business counsel, business formation, business transactions, business acquisitions, succession planning, partnership agreements, financing agreements, contract review, and intellectual property matters.
You can contact Pete by calling 574.232.3538 or email firstname.lastname@example.org.