Congress has passed the Coronavirus Aid, Relief and Economic Security (CARES) Act, providing some relief for small businesses during this challenging time. Major provisions in the legislation include debt relief programs, such as loans and grants, to support entrepreneurs and help them keep moving forward. To help you and your clients better understand the benefits that are available, we’ve created this summary of the CARES Act, including the Paycheck Protection Program. We’ll be updating this page with information in live time.
Small Business Debt Relief Program
Under the Small Business Debt Relief Program, existing SBA 504, 7(a), Community Advantage, and Microloan borrowers will have monthly payments (including principal, interest and fees) covered for six months beginning with any payment due on or after March 27, 2020. The government will be making the monthly payments during the six-month period and borrowers will be relieved of their payment obligations.
According to SBA:
Under the CARES Act, 7(a) Borrowers are relieved of any obligation to pay the principal, interest and any associated fees that are owed on a 7(a) loan in a regular servicing status (including Community Advantage loans) for a 6-month period beginning with the first payment due on a loan after March 27, 2020. SBA will pay this first loan payment to the Lenders within 30 days of the first loan payment due date after March 27, 2020. If a Lender receives a loan payment from a Borrower after March 27, 2020, the Lender must inform the Borrower that it has the option of the Lender either returning the loan payment to the Borrower or applying the loan payment to further reduce the loan balance after application of SBA’s payment.
To make the first payment, SBA will need Lenders to provide the gross monthly loan amount due (that includes both the guaranteed and non-guaranteed portions of the loan) as soon as possible to the FTA. SBA will provide further guidance to Lenders on the method and the date by which Lenders must provide the gross monthly loan amount.
What you can do now:
- For your SBA clients that have requested a modification, we recommend removing them from ACH immediately.
- Decide how you want to communicate this good news to your clients!
What Prudent Lenders is doing now:
- We will not process any new or existing modifications in connection with COVID-19, unless you instruct us otherwise, and we’ll allow the funding for SBA payments to serve its purpose.
Paycheck Protection Program
A major provision in the CARES Act is the Paycheck Protection Program. This loan program provides capital to businesses to borrow up to 250% of their average monthly payroll at just 1% interest.
About the Program
- Loan Amount: Maximum of $10 million. Businesses are eligible for up to 250% of monthly payroll costs. This will be calculated as a monthly average of payroll during 2019.
- Interest Rate: 1% fixed
- Fees: $0
- Term: 2 years, with a six-month period of full deferment of principal and interest.
- Loan Forgiveness: All or a portion of the loan may be forgiven if the business complies with rules regarding usage of the funds
- Collateral: This program does not require collateral of a personal guaranty
- Time to Funding: Loans will be disbursed three days after a complete application is submitted
Use of Funds
- Wages, payroll, salaries, benefits, independent contractors (1099), etc.
- Monthly rent payments
- Payments for utilities
- Interest payments for other loans, including mortgages
- Refinancing an SBA Economic Injury Disaster Loan (EIDL) obtained after January 1, 2020
To qualify, a business must:
- Have fewer than 500 employees
- Have been in operation as of February 15, 2020
- Have employees that are paid salaries with payroll taxes, or independent contractors that are reported on Form 1099.
- Be for-profit or non-profit
- Be a sole proprietorship, independent contractors, or self-employed
Visit our “Field Guide to the Paycheck Protection Program.”
- Visit the U.S. Chamber of Commerce Paycheck Protection Summary
- View the Treasury Department’s PPP Resources including: Program Overview, Lender Information Sheet, and Borrower Information Sheet