On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the CARES ACT) was signed into law. The CARES Act is designed to provide relief to businesses and individuals whose livelihoods have been disrupted by the virus. Some of the more critical aid will be implemented by the Small Business Administration, the most important of which are outlined here. It is prudent for any small business owner to explore these programs as soon as possible to determine if their business qualifies for one or more of these benefits.
- Paycheck Protection Program. Under the Paycheck Protection Program, the SBA will provide loans to small businesses to assist in keeping workers on their payroll. This program is designed for small businesses, defined as a business with less than 500 employees (although the SBA may extend loans to businesses in certain industries that exceed 500 employees, for more information see here). Eligible businesses can borrow up to $10 million. Loans advanced will have a 2-year term and bear an interest rate of 0.5%. Most importantly, the loan will be forgiven if the proceeds are used to pay payroll, rent, utilities, and interest on mortgages, so long as at least 75% of the loan amount is used to meet payroll. Loan forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease. Loan payments are deferred for six months, no collateral or personal guarantees are required, and neither the government or any lenders will charge fees on the loans.
This program is expected to be widely utilized, so those business owners thinking about applying for a loan should do so as soon as possible. A sample application form can be found here.
- SBA Disaster Loans. In addition to the Paycheck Protection Program, the SBA is also offering federal disaster loans to small businesses in all 50 States. Qualified businesses can borrow up to $2 million from the SBA, and the proceeds can be used to pay fixed debts, payroll, accounts payable, and other bills that can't be paid due to the impact of COVID-19. The interest rate charged to small businesses will be 3.75%, with a term of up to 30 years.
Small businesses in all 50 States can also apply to the SBA for an Economic Injury Disaster Loan advance of up to $10,0000. The SBA states that funds will be made available within 3 days of a successful application. Businesses can apply for a loan advance here.
- SBA Debt Relief. This SBA program concerns businesses that have or will borrow money from the SBA under a 7(a) loan. Under this program, the SBA will pay the principal and interest on certain 7(a) loans for a period of up to 6 months.
The COVID-19 crisis remains fluid and no one knows that the future holds. If you own a small business it is imperative that you take steps now to protect your livelihood. It is also imperative that you reach out to qualified attorneys to assist you in these efforts.