Understanding the CARES Act Loan Provisions

The loan provisions with the CARES Act can be, like most legislation, confusing. To make matters even more complicated, some parts of these loans are still getting resolved and changes are still occurring as banks prepare their procedures. Working with your banker for Paycheck Protection Program (PPP) loan program is incredibly important during this time. However, we are here to help as well. Our own experts have been monitoring the loan programs available and are ready to assist you with any questions.

In addition, the application process for these loans could be administratively burdensome—also on par with typical government procedures. As such, we are ready to help answer any questions on the application process. We’d even be happy to handle parts of the application process, such as

• assisting to calculate the loan amount,
• reporting historical financial information,
• helping prepare forecasts, or
• helping with the forgiveness calculation.

CARES Act Loan Provisions

Here’s a quick breakdown of what the Paycheck Protection Program includes.

• SBA 7(a) loan program expanded for Small Business Interruption Loans (SBILs).
• Available for businesses, not-for-profits, and others with ≤ 500 employees.
• Special exception for businesses with NAICS Code starting with 72.
• Key requirements of borrower for loan eligibility:
  • in business on February 15, 2020;
  • certifies economic uncertainty from COVID-19 lead to loan request; AND
  • certifies intent to use loan to retain/pay workers and other operating costs.
• Maximum Loan for each eligible business lesser of:
  • $10 million dollars;
  • or product of 2.5 times average monthly payroll/benefits payments for one-year period before date loan is made.
• Actual loan proceeds expanded (besides wages) to cover payments for mortgage, interest, rent and utilities for eight weeks following loan origination.
• Loan Terms: max interest rate is 4%; and loan amortized up to 10 years.
• Normal SBA fees waived. No collateral or personal guarantees required.
• If obtain SBIL loan under PPP, cannot also claim employee retention credit.
• Potential loan forgiveness is available.
  • Any small business obtaining an SBIL 7(a) loan during four-month period from March 1, 2020 through June 30, 2020 can see a portion of loan forgiven if business maintains payroll during this four-month period.
  • Forgiveness amount reduced if number of full-time employees reduced.
  • Any loan forgiveness under this provision is excluded from income of small business.
  • Borrower required to provide detailed documentation, including payroll records and evidence of eligible expenses for forgiveness to lender to assess loan forgiveness.

SBA Disaster Loan Program Changes

• Includes waiver of certain requirements for eligible businesses from January 31, 2020 through December 31, 2020. Might be able to combine with SBIL.
• Eligible businesses include those with ≤ 500 employees.
• Personal guarantees waived on Disaster Loans ≤ $200,000.
• Requirement waived for business in existence > one year.
• Requirement waived that borrower unable to obtain other credit.
• Applicants may receive an advance of funds based solely on submitting loan application – up to $10,000. Advance need not be repaid if application is ultimately denied.

If you would like any assistance in filing for your PPP loan, please contact your Sikich team member, and we will put you in touch with our local CARES Act loan experts.