The SBA Disaster Assistance bill (CARES Act) that includes $367 billion in low-interest SBA loans was voted on by the House of Representatives and signed by President Trump on 3/27/2020. These funds are now available to small businesses impacted by COVID-19.Who Is Eligible?It is crucial for every small business owner.
The SBA Disaster Assistance bill (CARES Act) that includes $367 billion in low-interest SBA loans was voted on by the House of Representatives and signed by President Trump on 3/27/2020. These funds are now available to small businesses impacted by COVID-19.
Who Is Eligible?
It is crucial for every small business owner to understand the nature of the loan guarantee program and what the qualification criteria will include.
In addition to the entities that are already eligible for SBA disaster loans (small businesses, private non-profits, and small agriculture cooperatives), eligibility is temporarily expanded to include:
Additionally, you must have been in business as of January 31, 2020. Expanded eligibility criteria and the emergency grants are only available between January 31, 2020 and December 31, 2020.
A business applying for the assistance will need to demonstrate that they were in business prior to February 15th with payroll receipts and other financial records.
Franchises and hospitality businesses (NAICS code 72) with multiple locations, even if they have more than 500 employees, may be exempted on a per location basis as well as any businesses receiving financial assistance from a Small Business Investment Company (SBIC).
How Much Can You Apply For?
The maximum loan amount will be the lesser of $10 million and 2.5 times the average monthly payroll costs for the one-year period before the loan is made, with consideration for any seasonality-based adjustments or a shorter period for businesses less than a year old.
The maximum loan amount for an SBA Express Loan has been raised from $350,000 to $1 million through December 30, 2020. In 2021 the maximum loan amount will drop back to $350,000.
The maximum loan term will be up to 10 years and the Secretary of the Treasury, in consultation with the SBA, will set guidance on interest rates and other terms and conditions of the program. Currently, interest rates are negotiated between the SBA lender and the borrower, based upon the Prime Rate or the SBA Peg Rate with a cap.
Interest payments will be deferred for the period of one year.
These loans are eligible for forgiveness, but the details here are important to understand so you don’t find your business in trouble.
CARES Act Loan Forgiveness
Specifically, the following items of indebtedness listed below are forgiven if they are made during the covered period. In addition, the forgiveness may potentially be excluded from gross income. However, the amount forgiven cannot exceed the principal amount of the loan. The items include:
The amount forgiven will be reduced if the business has had employee layoffs or reductions to employee
salaries and wages.
Applying for CARES Act Loan Forgiveness
Businesses who want to apply for loan forgiveness under this program need to submit supporting documentation including proof of verification of employees, proof of utility payments, rent, and other documents to substantiate their expenses. The lender must provide a decision within 60 days of receiving the application and supporting documentation. If approved, the SBA Administrator must remit payment (plus interest) to the lender within 90 days.
Any amount forgiven under the CARES Act that would ordinarily be includible as gross income to the borrower for federal tax purposes is excluded from gross income.
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