Important Note: we will hit capacity on how many clients we can execute this for (due to bandwidth). If you need our assistance, let us know ASAP.
On Friday, March 27th, President Trump signed the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) into law. This new law will enhance the SBA - Small Business Administration’s 7(a) loan program to provide much needed aid to small businesses and nonprofit organizations during this challenging time to cover operational costs including payroll and rent.
These loans are 100% guaranteed by the federal government, rather than businesses or individuals. If these funds are used for eligible expenses and specified criteria are met, the loan can be forgiven, which means it would not have to be repaid.
Loan amount & covered period:
Applicants are eligible for a loan equal to 2.5 times their average monthly payroll costs for the last 12 months. The maximum amount of a 7(a) loan is $10 million. The loan interest rate is fixed at 4%. There are no loan fees, and the loan can be forgiven if the criteria below are met.
Use of Funds:
Payroll costs including: payroll tax, sick leave, health insurance premiums and retirement benefits
Utilities
Rent
Mortgage interest originating prior to February 15, 2020
Other debt interest originating prior to February 15, 2020
Who is eligible?
Any of the following that were in operation prior to February 15, 2020:
- Businesses with less than 500 employees
- Self-employed individuals
- Nonprofits with less than 500 employees
Application Process:
The SBA - Small Business Association is currently working to finalize the loan application process. However, they will most likely require a copy of your prior year tax returns and payroll information. SBA loan applicants will be required to sign a good faith certification that they have been affected by COVID-19 and that funds will be used to retain employees and existing debt obligations. We will update this information as details are released.
Important note: this specific application, must go through a true local SBA banker. If you find yourself applying online to something, you may be hurting your chances for acceptance into the 7(a) Paycheck Protection Program.
Sample application form from the SBA.
Loan Forgiveness:
After the first 8 weeks of the loan, borrowers can apply to have up to 100% of their loan forgiven. The amount forgiven will be the amount spent on the expenses listed above in “Use of Funds.” These qualified expenses must be incurred within the first 8 weeks of the life of the loan. Business owners must provide specific documentation to the lender related to the appropriate use of the funds in order to prove that the business or nonprofit met all the criteria during this 8-week period.
These funds are intended to help businesses to maintain the same level of employees that they had in the recent past. The borrower must provide documentation to prove they maintained the same number of full-time employees (FTEs) and similar pay rates. If the borrower does not maintain the same level of FTEs the amount of their loan that is eligible for forgiveness is significantly decreased.
*Debt forgiveness has traditionally been taxed as income, but under this program the loan forgiveness is tax-free.
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This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.
