REACTION TO CORONAVIRUS AID, RELIEF AND ECOMONIC SECURITY (CARES) ACT

Friday, March 27, 2020, the President signed into law the CARES Act. It contains numerous provisions to not only assist the unemployed, small business and affected industries due to the pandemic, but also includes changes to tax policy.

The Act is voluminous and over the coming days will be broken down into pieces more easily understandable as it relates to individuals, small businesses and large corporations.

SBA Small Business Relief Loans

One of the most prominent pieces of the legislation is the loans available through the SBA. Under the Act, Paycheck Protection Program (PPP) loans could qualify for forgiveness if certain payroll parameters are achieved. The loans will be underwritten and guaranteed by the federal government but available through many local banks. Details for PPP loans are being developed and guidance from the SBA and banks will be available over the next several weeks.

We will continue to seek out information as it becomes available. This includes who qualifies for a forgivable loan, how and where you apply, what the loan limits are based upon and more importantly how is the loan forgiveness calculated.

A summary of various SBA loan programs is shown below.

Employer/Employment

The Act expands unemployment insurance, provides businesses with refundable payroll tax credits and deferral of payments for employer’s share of social security taxes. The Act integrates with the previously signed Families First Coronavirus Act which provides paid Emergency and Sick Leave to affected employees.

Individuals/Families

Provides rebates to be mailed or directly deposited in the upcoming weeks. Limits apply based on income levels. The Act also provides retirement income relief for those with Required Minimum Distributions and those affected with COVID‐19 to be relieved from penalties for withdrawals from retirement plans.

We will have more information becoming available over the next few days and we will relay it to our clients. If you need assistance, in determining how the CARES Act applies to your business, please call or email your Lopata Service Team Member.

AVAILABLE SBA PROGRAMS

SBA Economic Injury Disaster Loan (EIDL):

  • SBA is directly offering low‐interest federal disaster working capital term loans to small businesses suffering substantial economic injury as a result of COVID‐19
  • The SBA Disaster program has been authorized and the SBA is actively taking applications at www.sba.gov/disaster
  • Loans up to $2 million are to be repaid over 30 years at 3.75% fixed rate; payments deferred over first 12 months
  • Must be small business per SBA size standards
  • Loans > $25,000 require collateral

SBA Payroll Protection Program (PPP) under CARES Act:

  • Authorizes $350 billion for three months of 100% guaranteed 7(a loans to cover payroll costs, interest on mortgage payments, rent obligations, and utilities
  • Applies to businesses with fewer than 500 employees or those that meet SBA’s current size standards for 7(a) loans
  • Applies to self‐employed or individual contractors
  • Applies to certain non‐profits
  • The maximum loan size for borrowers is capped at the lesser of 250% of the average monthly “eligible” payroll costs (with a lookback of one year or relevant period for seasonal businesses), or $10 million
  • Interest rate capped at 4%
  • A portion of any loan issued as part of the PPP, up to or equal to 8 weeks of covered expenses, will be forgiven by SBA and paid to the lender, plus interest

SBA Express Bridge Loan (EBL):

  • Authorizes SBA Express Lenders to provide expedited SBA-guaranteed bridge loan financing on an emergency basis in amounts up to $25,000 for disaster-related purposes to small businesses in declared areas while those small businesses apply for and await long-term financing (including through SBA’s direct Disaster Loan Program, if eligible)
  • SBA Guaranty is 50.00%
  • Terms loans up to 7 years
  • Lender can require repayment if Disaster Loan is approved
  • No collateral required
  • Use of proceeds: to support the survival and/or reopening of small business
  • EBL loans can only be made to borrowers “with which the Lender had an existing banking relationship on or before the date of disaster”

SBA Regular 7(a) Loan Program:

  • The regular 7(a) Loan Program is still in effect with $18 billion remaining in FY20 budget
  • The limit for express loans with 50.00% SBA Guaranty has been temporarily raised to $1 million through 12/31/2020
  • A provision in the CARES Act Authorizes $17 billion to pay six months of principal and interest payments for all existing regular SBA 7(a) borrowers, plus new SBA loans that are booked over next 6 months after date of enactment. This provision provides relief on existing obligations

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