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March 26, 2020
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was unanimously approved by the Senate on March 25, 2020, and is Congress’ third response to the Coronavirus pandemic. The House of Representatives is scheduled to meet on Friday, March 27, 2020 at 8:00 am CDT. If approved, it is expected that President Trump will sign the bill into law as early as Friday evening.
***Note: The information within is subject to change with final legislation, and regulations and guidelines once the bill has passed.***
Among many other provisions, the 880 page CARES Act has significant relief for small businesses, including $349 billion in Small Business Administration (“SBA”) loan guarantees, subsidies and additional funding for SBA programs. We will focus on the highlights of the SBA 7(a) program.
Expansion of SBA 7(a) Loan Program supports the “Paycheck Protection Program” by granting loans between February 15, 2020 and June 30, 2020. The SBA’s existing 7(a) program will see:
Maximum Loan Amount
The final loan amount will be determined by multiplying your average payroll costs – over a 12 month period before the date on which the loan is made – by 2.5. For example, if the loan is made on April 1, 2020, you would look at the average payroll costs from April 1, 2019 through April 1, 2020 to determine the maximum loan amount.
Payroll costs include wages*, payments for vacation, sick leave* pay, health benefits, retirement benefits, and state or local tax on compensation of employees.
*Payroll costs do not include wages paid to individuals whose salary is in excess of $100k. Wages paid under the Families First Coronavirus Response Act (“FFCRA”) for which a credit is allowed, are also excluded.
Certain borrowers would be eligible for loan forgiveness equal to the total amount spent during an eight-week period, which begins after the origination date of the loan. Expenses eligible for forgiveness are:
The forgiven amount would be reduced in proportion to:
Final determination on loan forgiveness would be made by the lender administering the loan. Any amounts forgiven under these provisions would not be taxable income to the borrower.
The CARES Act program covers most businesses with 500 or fewer employees that were operational on February 15, 2020.
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