CARES Act Passes Senate and Tentative SBA Loans

On March 25th, the US Senate passed the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). As soon as this bill passes through the House and is signed by the President, it will increase the Small Business Administration’s 7(a) loan amount maximum to $10 million and expand what these funds can be used for.

This program is available to companies and nonprofits with less than 500 employees, as well as self-employed individuals that were in operation prior to February 15, 2020. Applicants will be required to sign a good faith certification that their business or nonprofit has been affected by COVID-19 and that funds will be used to retain employees and existing debt obligations. The loans have no borrower or lender fees associated with them and are guaranteed 100% by the government and not by the company or individual.

The borrower is required to use the money on payroll costs, debt obligations, rent and utilities. The greatest benefit to the borrowers is that if the funds are used for these purposes and other qualifications are met, the borrower is eligible for up to 100% loan forgiveness. Debt forgiveness is typically considered taxable income to the business or business owner, however, under this law the forgiveness is completely tax free.

In order for the loan to be completely forgiven employers must use the funds for the purposes previously listed during the first 8-week period after the loan origination. They must also maintain the same level of full time employees (FTEs) during this period that the company had on average during portions of the previous year. Should this percentage of FTEs decrease, the amount of the loan forgiven decreases proportionally.

This is a tremendous opportunity for employers (and the self-employed) to receive help during these uncertain times to be keep their business operating and provide for their employees. In order to apply for these loans and, more importantly, to apply for the forgiveness of these loans, the borrow must provide specific documentation as proof of appropriate use of these funds. If this is a program that could help your business or nonprofit, please contact Geeslin Group to see how we can help assist in your loan and forgiveness application process.

This information is an overview of the program, as provided by the CARES Act that passed the Senate on March 25th, 2020. This overview and the details of the program are subject to change upon arrival in the House.