Small Business Loans and Loan Forgiveness under the CARES Act

A2: The Program provides increased Loan eligibility for certain small businesses and organizations, and the following businesses may be eligible:

• small business concerns (as defined in the Small Business Act)
• any business concern, 501(c)(3) nonprofit organization, 501(c)(19) veterans organization, or Tribal business concern, so long as such entity does not employ more than the greater of:
• 500 employees*, or
• if applicable, the size standard in number of employees* established by the Small Business Administration for the industry in which such entity operates
• sole proprietors
• independent contractors
• eligible self-employed individuals 
• business concerns that employ not more than 500 employees* per physical location and that are assigned a NAICS code beginning with 72, for which the affiliation rules are waived
• certain business concerns operating as franchises (affiliation rules are waived for business concerns operating as franchises that are assigned a franchise identifier code by the Small Business Administration, and companies that receives funding through a Small Business Investment Company)

*For Loan eligibility purposes, the term “employee" includes individuals employed on a full-time, part-time, or other basis. 

Additionally, in evaluating the eligibility of a business for a Loan, a lender* will consider:

• whether the business was in operation on February 15, 2020
• whether the business had employees for whom the borrower paid salaries and payroll taxes, or paid independent contractors.

*A “lender” is an entity that meets the criteria established by the Department of Treasury, Small Business Administration, and Farm Credit Administration for insured depository institutions, insured credit unions, institutions of the Farm Credit System, and other lenders that do not already participate in SBA lending programs to participate in the Program until the date the COVID-19 national emergency  declaration expires.

A3: The Program presumes that an impacted borrower has been adversely impacted by COVID-19. In its Loan application, a business must certify that:

• the uncertainty of current economic condition makes the Loan necessary to support the ongoing operations of the business
• the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments

A4: The Loan amount is intended to cover eight (8) weeks of payroll expenses and any additional amounts for making payments toward debt obligations. The maximum Loan amount is the lesser of: 

• An amount determined based on a formula related to payroll costs incurred by the business during a certain period prior to the date of the Loan (approx. 250% of average monthly payroll expenses)
• $10,000,000

A5: Loan funds can be used for:

• payroll costs
• costs related to continuation of group healthcare benefits during periods of paid sick, medical, or family leave, and insurance premiums
• employee salaries, commissions, or similar compensation (unless excluded from payroll costs)
• mortgage obligation interest payments incurred before February 15, 2020 (not including any prepayment of or payment of principal on a mortgage obligation)
• rent, under lease agreements in force before February 15, 2020 (including rent under a lease agreement)
• utilities, for which service began before February 15, 2020
• interest on indebtedness incurred prior to the covered period 

“Payroll costs” are defined as follows:

• They include:
• Compensation (salary, wage, commission, or similar compensation, payment of cash tip or equivalent), capped at $100,000 on an annualized basis for each employee
• Payment for vacation, parental, family, medical, or sick leave
• Allowance for dismissal or separation
• Payment required for the provision of group health care benefits, including insurance premiums
• Payment of any retirement benefit
• Payment of state or local tax assessed on the compensation of employees
• For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee

• They do not include:
• Employee/owner compensation over $100,000
• Taxes imposed or withheld under chapters 21, 22, and 24 of the IRS code
• Compensation of employees whose principal place of residence is outside the U.S.
• Qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act

A6: During the covered period, no personal guarantee or collateral will be required for a Loan.

A7: For any Loan amounts not forgiven:

• What is the interest rate? 1.00% fixed rate.
• When does my business need to start paying interest on the Loan? All payments are deferred for 6 months (but interest will continue to accrue over this period).
• When is the Loan due? In 2 years.
• Can my business pay the Loan earlier than 2 years? Yes. There are no prepayment penalties or fees.

A8: No. A business is limited to one Loan under the Program.

A9: Under Section 1106 of the Act, a business that receives a Loan may be eligible for forgiveness of the Loan in an amount equal to the sum of certain costs incurred and payments made during the covered period, as follows:

• The "covered period" is an eight (8) week period after the origination date of the Loan. 

• Permissible costs and payments include: 

• payroll costs
• interest payments on any mortgage (where the mortgage obligation was incurred prior to February 15, 2020)
• rent on any lease in effect prior to February 15, 2020
• utilities (electricity, gas, water, transportation, telephone, internet access) for which service began before February 15, 2020

If you use Loan funds for other business-related expenses (such as inventory), that portion of the Loan will not be forgiven.

A10: The Loan is forgiven at the end of the 8-week period after you take out the Loan.

A11: The covered period during which expenses can be forgiven is the 8-week period after your business receives the Loan.

A12: 

• Your business will owe money when your Loan is due if you use the Loan for anything other than payroll costs, mortgage interest, rent, and utilities payments over covered period.
• Because of likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
• The amount of forgiveness also may be subject to reductions (see next question).

A13: The amount of Loan forgiveness may be reduced if your business does not maintain your staff and payroll:

• Number of Staff: If your business reduces the number of employees during the covered period compared to one of two prior pay period time periods (see below) determined by the borrower, the forgiveness amount may be reduced proportionate to the reduction in employees.
• For this purpose, "employees" means full-time equivalent employees.
• Prior pay period time periods: Your business chooses which time period it wants to use, either (a) the average number of full-time employees in the period beginning on February 15, 2019 and ending on June 30, 2019, or (b) the average number of full-time employees in the period beginning on January 1, 2020 and ending on February 29, 2020.
• If your business is a "seasonable employer," you must use (a). 

• Level of Payroll: If your business reduces total salary or wages of any employees during the covered period, the forgiveness amount may be reduced by the amount of such reduction that is in excess of twenty-five percent (25%) of the total salary or wages of the employee during the most recent full quarter during which the employee was employed before the covered period.
• For this purpose, "employee" does not include any employee who received, during any single pay period in 2019, wages or salary at an annualized rate of pay of more than $100,000. 

• Note that a business may be exempt from certain reductions if the business restores staff and payroll levels (see next question).

A14: The amount of Loan forgiveness will not be reduced because of employee reductions or salary reductions occurring between February 15, 2020 and 30 days after the Act’s enactment (April 26, 2020) (the "reduction period") under the following circumstances:

• If a business reduced the number of full-time employees during the reduction period and, no later than June 30, 2020, the business has eliminated the reduction in the number of full-time employees; 
• If a business reduced the salary or wages of 1 or more employees and, no later than June 30, 2020, the business has eliminated the reduction in the salary or wages of such employees.

• the number of employees on payroll and payrates, including IRS payroll tax filings and State income, payroll and unemployment insurance filings
• payments on covered mortgage obligations, lease/rent obligations, and utilities