Recently, Congress passed and the President signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which reserves $350 billion for small business loans. Small businesses with fewer than 500 employees or that meet the Small Business Administration (SBA) size standard (this can be determined using the following site: https://www.sba.gov/size-standards/) are eligible for loans under the Act. Also eligible are 501(c)(3) organizations with fewer than 500 employees, sole proprietors, independent contractors, and self-employed individuals.

Colligan Law is here to help you navigate the CARES Act so that your business can meet its needs.

Lender Consideration

In making their decisions on eligibility, lenders will consider whether applicants were in business prior to February 15, 2020 and paying employee salaries, payroll taxes, or independent contractors. Additionally, applicants must: (1) make a good faith certification that the current crisis makes the loan application necessary to continue operations; (2) acknowledge that the funds received will be used to retain employees and maintain payroll or make mortgage, lease, or utility payments; (3) not have pending applications for another loan for the same purpose and for the same amounts applied for or received under a covered loan; and (4) not receive amounts under the bill for the same amounts applied for or received under a covered loan during the period of February 15, 2020, to December 31, 2020.

These loans do not require a personal guarantee and do not require collateral as security.

Loan Amount

Loans may be up to 2.5 times the applicant's average monthly payroll costs but may not exceed $10 million. Included payroll costs are: (1) salaries, wages, or commission; (2) payment of cash tips; (3) vacation, family, or medical/sick leave; (4) allowance for dismissal or separation; (5) health care and retirement benefit payments; and (6) state or local tax payments on employee compensation.

Not included in payroll costs are: (1) any individual employee pay over $100,000 (pro-rated for February 15, 2020, to June 30, 2020); (2) payroll taxes; (3) income taxes; (4) pay of employees who live outside the U.S.; and (5) qualified sick or family leave wages that allow credits.

Loan Forgiveness

Loans may be forgiven in the amount the applicant spent, during an 8-week period beginning on the loan's origination date, on: (1) payroll; (2) any payments of interest on any covered mortgage; (3) any payment on any covered rent; (4) any covered utility and (5) other wages paid to tipped employees. The amount forgiven, of course, may not exceed the amount of financing provided to the small business under the covered loan.

Should the applicant reduce its number of employees or reduce by more than 25% the wages it pays to its employees, the amount forgiven will be reduced.