Following up on our recent client alerts about SARS-Cov-2 disaster relief for small businesses, one of the brightest spots for small businesses in the latest (third if you’re keeping score) federal stimulus package, which was enacted March 27 as the ‘CARES Act,” are emergency Small Business Administration 7(a) loans. These “payroll protection loans” will be made available through the 1800 banks nationwide that are already SBA-certified lenders and offered funding for 2.5X a business’s average monthly payroll, rent, interest expense, and utility payments — up to a $10 million maximum loan amount. Your business must have less than 500 employees, but there are affiliate rules so, for example, if you operate multiple hotel properties you may be able to disaggregate headcount for purposes of qualifying.
Importantly, these loans will *not* require personal guarantees from the business owners. Further, loan proceeds that actually get spent on payroll, rent, and the like during the initial 8 weeks after receiving the loan are eligible to be forgiven at the end of the calendar year, with repayment of the remainder amortized over 10 years at rates less than 4%, after an initial one-year “interest free” period.
The payroll protection loans are a completely different product than the previously-announced “Economic Injury Disaster Loans” available directly from the SBA. EIDL’s have longer amortization periods, require personal guarantees, and do not include a forgiveness component. A variety of assistance programs are being established throughout this pandemic, and they vary significantly in their benefits and in their eligibility requirements. Business owners should carefully assess which of the new federal programs is most advantageous before applying as well as how best to manage any loans received.
We continue our efforts to stay abreast of these new working capital opportunities and are looking forward to working with clients to access the growing range of sources.