• Congress passed the CARES Act this past Friday,  which includes a $350 billion business loan program through the Small Business Administration (the “SBA 7a Loan”) providing economic relief to small businesses and individuals affected by COVI-19.
  • Both SBA Loans will be underwritten and issued by large lenders.
  • The deadline for obtaining the SBA 7a loan is June 30, 2020 and while banks won’t have final applications until mid-April, it is important to begin discussions with a participating lender soon given the expected number of applications.

Eligibility

SBA 7(a) Loans

  • Any business which employs not more than 500 employees, unless the covered industry’s SBA size standard allows more than 500 employees.
  • These loans are available to most multi-unit restaurants and hotels: as written, the loans are generally available to businesses with not more than 500 employees, but the language includes an important exception for industries classified by NAICS code 72 (restaurants and hotels). For businesses in this industry category, they’re eligible so long as they don’t have “more than 500 employees per physical location.” 

Amount of Funds

Loan amount shall be the lesser of:

  • $10,000,000 OR
    • For those in business before February 15, 2019 – Multiply the sum average total monthly payments by the applicant for payroll costs incurred during the 1-year period before the date on which the loan is made (with separate determination for seasonal employer) by 2.5
    • For those not in business during the period beginning on February 15, 2019 and ending on June 30, 2019, Multiply the average total monthly payments by the applicant for payroll costs incurred during the period beginning on January 1, 2020 and ending on February 29, 2020 by 2.5

Loan Terms

  • Interest rate not to exceed 4%.
  • Repayment term not to exceed 30 years; determined by ability to repay the loan
  • Recipients are eligible for forgiveness of a portion of the loan in an amount equal to the sum of payroll costs, interest payments on mortgage obligations, payments on covered rent obligations, and any covered utility payments, but not to exceed the principal amount. The amount of loan forgiveness will be reduced in accordance with any reduction in the number of employees or employee salaries during the covered period
  • Following loan forgiveness, the remaining loan balance will be federally guaranteed. The remaining loan balance will have a maximum maturity of 10 years from the date the borrower applies for loan forgiveness
  • Complete payment deferment relief for a period of not less than 6 months, but not to exceed 1 year

Application Requirements

SBA Disaster Assistance Loans

  • Small businesses, small agricultural cooperatives, private nonprofit organizations, and entities considered small for the industry in which they operate.
  • Must have suffered substantial economic injury (business is unable to meet its obligations and to pay its ordinary and necessary operating expenses) and be located in a declared disaster area. The entire country has been declared a disaster area for COVID-19.
  • SBA to approve loans based solely on an applicant’s credit score without requiring a tax return, or to use alternative methods to determine an applicant’s ability to repay.

Amount of Funds

  • Up to $2 million; used to help meet financial obligations and operating expenses that could have been met had the disaster not occurred
  • Loan amount will be based on actual economic injury and company’s financial needs

Loan Terms

  • Interest rate not to exceed 4%
  • Repayment term not to exceed 30 years; determined by ability to repay the loan
  • Applicant is allowed to request an advance, separate from the loan, in an amount not to exceed $10,000 within three days after SBA receives an application. An advance may be used to maintain payroll, provide sick leave related to COVID-19, and meet costs due to interrupted supply chains, among other provisions
  • An applicant shall not be required to repay any amounts of an advance provided, even if subsequently denied a loan
  • Advance amount must be considered when determining certain loan forgiveness if the applicant transfers into a 7(a) loan program.

Application Requirements

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