On March 27th, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. This $2 trillion package includes two key provisions to provide support for America’s small businesses:

Small Business Debt Relief Program

This program will provide immediate relief to small businesses with non-disaster SBA loans, in particular 7(a), 504, and microloans. Under it, the SBA will cover all loan payments on these SBA loans, including principal, interest, and fees, for six months. This relief is also be available to new borrowers who take out loans within six months the CARES Act enactment.

Specifically, the CARES Act requires the SBA to pay the principal, interest, and associated fees for:

  • Covered loans, not in deferment, that were made prior to the enactment of this bill – for 6 months, beginning with the next payment due on the covered loan
  • Covered loans made before the date of enactment of this Act (March 27th) and on deferment, for 6 months, beginning with the next payment due on the covered loan after the deferment period
  • Covered loan funded on/within 6 months beyond March 27th for 6 months beginning with the first payment due on the covered loan

Paycheck Protection Program (PPP)

The CARES act makes temporary changes to the SBA 7(a) loan program by providing 100% loan guarantees for SBA-administered loans of up to $10 million per small business.

  • Allowable uses of the loan include payroll support, such as employee salaries, paid sick or medical leave, insurance premiums, and mortgage, rent, and utility payments.
  • Waives collateral and personal guarantee requirements as well as the credit elsewhere test for funds, on covered loans under this program.
  • Eligible businesses must have been operating on February 15, 2020, and the borrower must provide a lender with a good faith certification of need.
  • PPP provides loan forgiveness of up to 8 weeks of payroll based on employee retention and salary levels
  • Interest rate of 1% and loan maturity in two years for non-forgiven portion
  • No borrower or lender fees payable to the SBA
  • First payment deferred for six months
  • Entities will be eligible to apply if they were harmed by COVID-19 between February 15, 2020 and June 30, 2020. This program would be retroactive to February 15, 2020, in order to help bring workers who may have already been laid off back onto payrolls.
  • Loans are available through June 30, 2020.

The U.S. Department of Treasury provided the following guidance and sample application to help prepare:

PPP Guidance for Lenders
PPP Guidance for Borrowers

Additionally, for borrowers interested in utilizing the PPP loan, be sure to collect the following documents:

  • Financial statements – Interim 2020 income statement and balance sheet and full year 2019 income statement and balance sheet.
  • Tax Returns – last three (3) years of federal returns for business.
  • 2019 payroll information.
  • Current organizational documents – Bylaws, articles and operating agreements.
  • General liability insurance information.
  • Current building lease & any amendments.

The Senate Small Business Committee also produced a comprehensive resource on these two programs.

Download The Small Business Owner's Guide to the CARES Act

To receive the most up to date information on small business capital resources, subscribe to the SomerCor newsletter.