The Coronavirus Aid, Relief, and Economic Security Act SBA 7(a) LoansWritten by Ryan Hoover The Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion plan to respond to the crisis caused by the coronavirus pandemic was signed into law on March 27, 2020. The stimulus package includes loans, tax breaks and direct payments for businesses and individual taxpayers, including $349 billion for Small Business Administration (SBA) loan guarantees and subsidies and additional funding for SBA resources. The 7(a) loan program is the SBA’s primary program for providing financial assistance to small businesses. The maximum loan amount is 2.5 times a business’s average monthly payments for payroll, up to $10 million. The entities eligible for 7(a) loans under the CARES Act include small businesses, nonprofits, and veterans organizations with 500 or fewer employees (or the applicable size standard for a particular industry). The CARES Act includes sole proprietors, independent contractors, and other self-employed individuals. To determine a small business’s eligibility, the CARES Act requires lenders to determine: (1) whether a business was operational on February 15, 2020, and (2) whether the business had employees for whom it paid salaries and payroll taxes, or paid independent contractors, and (3) whether the business has been substantially impacted by COVID-19. The CARES Act also delegates more authority to lenders on eligibility determinations without requiring them to go through all of the usual SBA channels. If a loan is obtained, a borrower is eligible for loan repayment deferral and, eventually, forgiveness equal to the amount the borrower spent on payroll costs (pro-rated based on a maximum employee annual salary of $100,000), employee benefits and leave, mortgage interest payments, debt refinancing, rent and utilities during the 8-week period beginning on the date of the origination of the loan. The amount of loan forgiveness is determined based on the number of full-time equivalent employees the borrower retains through a certain period using a formula provided in the CARES Act. ScottHulse attorneys can assist our clients with helping determine eligibility for the loan, reviewing or drafting any of the entity documents that are required, completing the loan application process, recommending lenders, and analyzing any existing loans for any additional consents that may be needed. For assistance, contact any of our Corporate attorneys. We’re here to help.
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