March 30, 2020
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COVID-19 Federal Loan Assistance Programs
In response to the global COVID-19 pandemic, on March 27, 2020 Congress enacted and the President signed the Federal Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Among other things, the CARES Act:
Until June 30, 2020, the Paycheck Protection Program allows the SBA to provide 100% federally-backed loans up to a maximum amount to eligible businesses to help pay operational costs like payroll, rent, health benefits, insurance premiums, utilities, and other costs. No personal guarantees or collateral are required. Subject to certain conditions, loan amounts are forgivable. The SBA is granted the right to make PPP Loans directly or PPP Loans may be made through third party lenders. Lenders currently authorized to make 7(a) loans are automatically approved to make PPP Loans.
Eligible Borrowers. In addition to SBA “small business concerns”, eligible businesses for the new program include any business concern, nonprofit organization, veterans’ organization, or Tribal business if:
Special Eligibility Rules.
Loan Limits. There is an overall cap of $10 million. Up to this cap, the maximum loan amount an applicant can receive for a PPP Loan is:
Use of Loan Funds. Businesses may, in addition to uses already allowed under the SBA’s 7(a) Business Loan Program, use the loans for: (1) payroll costs; (2) continuation of group health care benefits during periods of paid sick, medical, or family leave, or insurance premiums; (3) salaries or commissions or similar compensation; (4) interest on mortgage obligations; (5) rent; (6) utilities; and (7) interest on other outstanding debts.
General Loan Terms.
Loan Forgiveness. A key aspect of the Paycheck Protection Program is that the PPP Loan is subject to forgiveness and forgiven amounts are not subject to federal income tax. Borrowers are eligible for loan forgiveness equal to the amount spent by the borrower during the 8-week period beginning on the date the loan is originated. The following costs are subject to forgiveness: (1) payroll costs (including additional wages paid to tipped employees); (2) interest on any mortgage obligation; (3) rent; and (4) utilities payment.
The amount subject to forgiveness will be reduced as follows:
An EID Loan is a low-interest, fixed-rate loan that can provide up to $2 million in assistance for a borrower. EID Loan funds come directly from the federal government. Applicants do not go through a lender to apply, and instead, apply directly to SBA’s Disaster Assistance Program. Actual loan amounts are based on the amount of economic injury. The covered period for the new EID Loan rules is January 31, 2020 through December 31, 2020.
General Eligibility. An applicant must have been in operation on January 31, 2020. In addition to current eligible businesses, the following are eligible:
General Loan Terms.
Use of Funds. EID Loans may be used to pay (1) fixed debts; (2) payroll, (3) accounts payable and (4) other bills that can’t be paid because of the disaster’s impact. The loan may not be used for refinancing, expansion, growth of any kind, or infrastructure improvements.
Emergency Advance. Applicants may request an emergency advance from the SBA of up to $10,000, which does not have to be repaid, even if the loan application is later denied. Advances are to be awarded within 3 days of an application.
For more information of the CARES Act as well PPP Loans and EID Loans, please contact Andrew Hogenson or your regular Lathrop GPM contact.
 Those assigned to the “accommodation and food services” sector (Sector 72) under the North American Industry Classification System (NAICS).
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