CARES Act emergency small business loans: What you need to know
April 8th, 2020 update: We have received feedback that many lending institutions may already or will soon be at their capacity for these types of loans. You may want to contact your bank to see if they have available funds to borrow.
If you are a small business owner, you’ve probably been following news about the recently-passed $350 billion CARES Act (Coronavirus Aid, Relief, and Economic Security Act) and wondering how you may be able to access funds to help tide your business and staff over in this period of uncertainty.
First familiarize yourself with the basics of CARES to better understand if the Act’s Paycheck Protection Program could apply to your individual business’ situation and what the next steps are.
This list that follows is not all-inclusive; complete information on the CARES Act and Paycheck Protection Program can be found at https://home.treasury.gov/policy-issues/top-priorities/cares-act/assistance-for-small-businesses
1. Eligibility. Requirements for the program include small businesses or individuals that:
have fewer than 500 employees, which includes all employees who are full-time, part-time, and any other status, or
operate as a sole proprietor or an independent contractor
2. Lender requirements. The business must have been in operation before February 15, 2020 and had employees or independent contractors for whom they paid salaries and payroll taxes
A personal guarantee or collateral are not required for the loan
Lenders will ask for a good faith certification regarding the need for the loan and how the loan will be used to support ongoing operations and payroll expenses and may require additional documentation
3. Borrowing limit. Up to 2.5 x average monthly payroll costs, not to exceed $10 million
The calculation of payroll costs includes all forms of compensation and tips, personal or sick time payments, severance, health care or insurance premium payments
Make sure you are aware of the salary limits and the detail surrounding the calculations of these loans; use the attached resources for more details
4. Loan forgiveness. Under certain circumstances and timeframes, the loans may be forgiven. The loan forgiveness cannot exceed the principal, and could include:
Payroll costs, mortgage interest, rent, utilities
However, the amount of loan forgiveness will be reduced if there is a reduction in the number of employees or more than a 25% reduction in wages
Additional resources:
About the Act and the Paycheck Protection Program.
A loan application form to help get you started if you are considering taking advantage of the program.