Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
Small Business Support
- The bill includes a $350 billion package, which would expand the existing SBA Section 7(a) loan program to provide loans of up to $10 million for qualifying small businesses, along with an opportunity for future loan forgiveness.
- Eligibility for these small business interruption (“SBI”) loans will expire on December 31, 2020, and is limited to businesses with less than 500 employees. The maximum loan amount will be four times the business's average monthly expenses (payroll, mortgage, rent, payments on debt obligations) for the preceding year, or $10 million, whichever is less.
- Loans would be backed by a 100% federal guarantee through December 31, 2020, at which time the guarantee percentage would revert to the standard Section 7(a) loan guarantee. A borrower who receives an SBI loan to pay employee salaries, payroll support, mortgage payments, and other debt obligations may not also receive an SBA economic injury disaster loan (EIDL) for the same purpose.
- Loan proceeds may be used for:
- Debt obligations incurred before March 1, 2020;
- Payroll support;
- Employee salaries;
- Mortgage payment;
- Rent; and
- The bill also would seek to streamline processing by delegating authority to make and approve loans to qualified lenders (thus eliminating the need to go through SBA), waiving both fees for both borrowers and lenders, and limiting consideration only to whether the borrower was in operation on March 1, 2020, and had employees for whom the borrower paid salaries and payroll taxes.
- The bill provides that loans will be eligible for a complete payment deferment for up to one year, as well as forgiveness for the total amount borrowers spent on payroll costs between March 1 and June 30, 2020, and payments made between March 1 and June 30, 2020, on debt obligations incurred prior to March 1, 2020. However, the total amount of potential loan forgiveness will be reduced proportionately to any reduction in the borrower's number of employees, and a reduction would also apply if employees' salaries are reduced by more than 25%.
The vote failed 49-46 today and they require 60 affirmative votes for it to pass. There are aspects of the bill which are more controversial (e.g. corporate bail outs, federal student loan forgiveness, healthcare support), however some of the sticking points related to small businesses include the expansion of the SBI loan provision to include businesses with more than 500 employees and a fear that the $350 billion would not be sufficient to meet demand for small businesses.