• Derek Carter

Coronavirus Aid, Relief, and Economic Security (CARES) Act

Updated: Apr 22

Title I - Keeping American Workers Paid and Employed Act


General Information

  • Covered Period - February 15, 2020 to June 30, 2020


Loan - Issuers

  • The SBA Directly and

  • Non-government lenders, lenders already authorized to make loans under the SBA’s current loan program are automatically approved to make loans under the new program


Loan - Borrower Requirements

  • Certification - An eligible recipient applying for a covered loan shall make a good faith certification

- The uncertainty of current economic conditions make necessary the loan request to support ongoing operations

- Funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments

- Does not have an application pending for a loan under this Act for the same purpose

- During the period beginning on February 15, 2020 and ending on December 31, 2020, that the eligible recipient has not received amounts under this subsection

  • The borrower was operating on February 15, 2020 and had employees or independent contractors that had been paid


Loan - Eligibility

  • Any business meeting the standard SBA definition of “small business concern”, as well a business concern that employs not more than the greater of

- 500 employees or

- The size standard in the number of employees established by the Administration for the applicable industry

  • Individuals who operate under a sole proprietorship or as an independent contractor and eligible self-employed individuals shall be eligible to receive a covered loan

  • Business Concerns with More Than 1 Physical Location

- If the business concern employees not more than 500 employees per physical location and is assigned a NAICS code beginning with “72” (Accomodation; Food Services and Drinking Places) shall be eligible to receive a covered loan

  • Waiver of Affiliation Rules

- Affiliation rules are waived with respond to eligibility for a covered loan for:

- Any business concern with not more than 500 employees and is assigned a NAICS code beginning with “72” (Accomodation; Food Services and Drinking Places)

- Any business concern operating as a franchise that is assigned a franchise identifier code (see here) by the Administration

- Any business concern that receives financial assistance from a company licensed under section 301 of the Small Business Investment Act


Loan - Amount

  • Maximum loan amount is the lesser of:

- $10,000,000 OR

- Average total monthly payroll costs incurred during the 1-year period before the loan is made MULTIPLIED by 2.5 PLUS the outstanding amount of a loan made under the SBA’s Disaster Loan Program beginning January 31, 2020 and ending on the date on which covered loans are made available to be refinanced under the new program OR

- Note for seasonal employers - Use average total monthly payroll costs incurred between February 15, 2019 or March 1, 2019 to June 30, 2019

- If requested by an eligible recipient that was not in business during the period beginning on February 15, 2019 and ending on June 30, 2019, the sum of

- Average total monthly payroll costs incurred during the period beginning

January 1, 2020 and ending on February 29, 2020 MULTIPLIED by 2.5 PLUS the outstanding amount of a loan made under the SBA’s Disaster Loan Program beginning January 31, 2020 and ending on the date on which covered loans are made available to be refinanced under the new program


Loan - Allowable Uses

  • Payroll Costs

- Payroll Costs

- Salary, wage, commission, or similar compensation; cash tips or equivalents; paid time off; severance; required payments for group health care benefits, including insurance premiums; retirement benefits; state or local tax assessed on the compensation of employees; compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earned from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year as prorated for the covered period

- Excluded Payroll Costs

- Compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period; Taxes imposed or withheld under Chapters 21, 22, or 24 of the IRC; All compensation to an employee who resides outside of the US; qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act; qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act

  • Costs related to the continuation of group health care benefits during periods of paid sick, medical or family leave, and insurance premiums

  • Payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation)

  • Rent

  • Utilities

  • Interest on any other debt obligations that were incurred before the covered period


Loan - Payment Deferral

  • For small business concerns in operation on February 15, 2020 and that have an application for a covered loan approved or pending approval on or after the date of enactment are presumed to have complete payment deferral rights

  • Lenders are required to provide complete payment deferment relief for impacted borrowers which covers loans for a period of not less than 6 months and not more than 1 year, including payment of principal, interest, and fees


Loan - Forgiveness

  • An eligible recipient shall be eligible for forgiveness of indebtedness on a covered loan in an amount equal to the sum of the following costs incurred and payments made during the covered period

- Payroll costs

- Any payment of interest on any covered mortgage obligation

- Any payment on any covered rent obligation

- Any covered utility payment

- Any amounts which have been forgiven shall be considered cancelled indebtedness and not treated as income by the borrower for income tax purposes


Limits on Amount of Forgiveness

  • Forgiveness amount may not exceed principal amount of loan

  • Reduction Based on Reduction in Number of Employees (Note: This formula can be used to reduce forgiveness amount, but cannot be used to increase them.)

- The average number of full-time equivalent employees per month during the covered period divided by (at the election of the borrower):

- The average number of full-time equivalent employees per month during the period beginning February 15, 2019 and ending on June 30, 2019 OR

- The average number of full-time equivalent employees per month during the period beginning January 1, 2020 and ending on February 29, 2020

  • Reduction Relating to Salary and Wages

- Forgiveness shall be reduced by the amount of any reduction in total salary or wages of any employee during the covered period that is in excess of 25 percent of the total salary or wages of the employee during the most recent full quarter during which the employee was employed before the covered period

- Employee is limited, for purposes of this section, to any employee who did not receive during any single pay period during 2019 a salary or wages at an annualized rate of pay over $100,000

  • Exemption for Rehires

- Loan forgiveness shall be determined without regard to a reduction in the number of full-time equivalent employees or a reduction in the salary of 1 or more employees during the period beginning on February 15, 2020 and ending on the date that is 30 days after the date of enactment of this Act given the following circumstances:

- The employer reduces the number of full-time equivalent employees between February 15, 2020 and 30 days after the date of this Act’s enactment, and not later than June 30, 2020, the employer has eliminated the reduction in the number of full-time equivalent employees

- The employer reduces the salary or wages of 1 more more employees between February 15, 2020 and 30 days after the date of this Act’s enactment, and not later than June 30, 2020, the employer has eliminated the reduction in salary or wages of such employees

  • Tipped Workers - An eligible recipient with tipped employees may receive forgiveness for additional wages paid to those employees


Loan - Forgiveness Required Documentation

  • Documentation verifying the number of full-time equivalent employees on payroll and pay rates for the periods noted above, including:

- Payroll tax filings reported to the IRS

- State income, payroll, and unemployment insurance files

  • Documentation including cancelled checks, payment receipts, transcript of accounts, or other documents verifying payments on covered mortgage obligations, lease obligations, and utility payments

  • Certification that:

- The documentation presented is true and correct

- The amount how which forgiveness is request was used to retain employees, make interest payments on a covered mortgage, make rent payments, make utility payments

  • Other documentation the Administrator may require

  • It is noted that NO eligible recipient shall receive forgiveness without submitting to the lender the documentation noted above.

  • Any forgiven loan amounts shall be excluded from gross income of the borrower for income tax purposes



Loan - Remaining Balances

  • Remaining loan balances (after forgiveness) shall be guaranteed by the Administration

  • The loan shall have a maximum maturity of 10 years from the date the borrower applies for loan forgiveness

  • The loan shall have an interest rate not exceeding 4 percent


Loan - Other Information

  • No Fees associated with loans under this program

  • Requirement that a small business is unable to obtain credit elsewhere is waived

  • Collateral NOT required

  • Personal guarantee NOT required

  • A loan made under the Disaster Loan Program (EIDL) on or after January 31, 2020, may be refinanced as part of a covered loan under the new program.

  • Tipped Workers - An eligible recipient with tipped employees may receive forgiveness for additional wages paid to those employees

  • Nonrecourse - the Administrator shall have no recourse against any individual shareholder, member or partner of an eligible recipient of a covers loan for non-payment of any covered loan, except to the extent that such person used the covered loan process for a purpose not authorized as noted above


Expansion of SBA Disaster Loan Program

  • Covered Period - January 31, 2020 - December 31, 2020

  • Waives any rules related to the personal guarantee on advances and loans of not more than $200,000 during the covered period

  • Waives the requirement that an applicant needs to be in business for the 1-year period before the disaster, except that no waiver may be made for a business that was not in operation on January 31, 2020

  • Waives the requirement that an applicant be unable to obtain credit elsewhere

  • Allows lenders to approve applicants based solely on credit score and shall not require an applicant to submit a tax return or to use an alternative appropriate method to determine an applicant’s ability to repay

  • During the covered period, an entity (same eligibility applies as noted above) may request the Administrator provide an advance, in the amount requested by such applicant within 3 days after the Administrator receives an application

- Administrator shall verify that the applicant is an eligible entity by accepting a self- certification from the applicant

- The amount of an advance provider shall not be more than $10,000

  • Use of Funds

- Providing paid sick leave to employees

- Maintaining payroll to retain employees during business disruptions or substantial slowdowns

- Meeting increased costs due to interrupted supply chains

- Making rent or mortgage payments

- Repaying obligations that cannot be met due to revenue losses

  • Repayment

- An applicant shall not be required to repay any amounts of an advance even if subsequently denied a loan

  • Unemployment Grant

- If an applicant receives an advance and subsequently transfers into, or is approve for, a loan under the SBA Business Loan Program, the advance amount will be reduced from any payroll cost forgiveness amounts

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