New Small Business Loans Under the CARES Act Open April 3: Eligibility, Application, and Key Terms/Benefits

The CARES Act includes the Paycheck Protection Program (PPP) for small businesses. The PPP provides short-term cash flow assistance to small businesses, including foundries, and their employees deal with the immediate economic impact of the COVID-19 pandemic. Loans are made by lenders certified by the Small Business Administration (SBA) and guaranteed by the federal government. The SBA will administer the PPP.

The U.S. Chamber of Commerce has launched a step-by-step guide to help small businesses, sole proprietors, and independent contractors navigate the $350 billion in emergency loans created by Congress to help you keep your employees employed. Take a look at this guide and view this interactive map to show the aid available to small businesses on a state-by-state basis. 

On March 31, 2020, the Treasury Department and the SBA released a top-line overview of the program and the sample PPP loan application. If you wish to begin preparing your application, you can download a sample form to see the information that will be requested from you. Small businesses can start applying for the PPP loans on April 3.

PPP Eligible Business: The PPP is available to small business concerns (businesses that are independently owned and operated, organized for profit, and are not dominant in their field) and 501(c)(3) nonprofits, with 500 or fewer employees (full and part-time) and not more than the applicable size standard for their industry, as provided by the SBA, if higher. Eligible small businesses also include sole-proprietors, independent contractors, or other self-employed individuals.

The SBA publishes the applicable size standard for each industry, broken down by North American Industry Classification System code, every year. These standards can be found here.

Here is the breakout of SBA size standards for foundries:

Eligibility Period: PPP loans must be made during the period prior to June 30, 2020.

Payment Forgiveness: Principal amounts on PPP loans, for the first 8-week period from when the PPP Loan is made, may be forgiven, if loan funds are used to cover payroll costs, interest payments on mortgages (not including prepayments or principal), rent and utilities. The amount of a PPP loan that may be forgiven cannot exceed the principal amount of the loan. To get the full benefit of loan forgiveness, businesses must keep their employees and pay them at least 75% percent of their prior-year compensation.

The amount of the loan that may be forgiven will be ratably reduced if the average number of full-time equivalent (FTE) employees during the 8-week forgiveness period is less than the average number of FTE employees at either, (a) the period February 15, 2019, through June 30, 2019, or (b) the period January 1, 2020, to February 29, 2020; the employer chooses which period to compare. To encourage employers to rehire workers laid off due to the COVID-19 crisis, employers that rehire previously laid-off workers will not be penalized for having a reduced payroll at the beginning of the forgiveness period. If, during the period from February 15, 2020, through 30 days after enactment of the CARES Act, there is either a reduction in the number of or wages paid to FTE employees and the employer eliminates the reduction by June 30, 2020, the amount of loan forgiveness will be determined without regard to the reduction.

To apply for forgiveness, businesses must submit documentation regarding the eligible uses of loan funds (payroll costs, mortgage interest, utilities, etc.), a certification that such documents are true and correct, as well the amount to be forgiven, and any other documentation the SBA Administrator deems necessary. The SBA will purchase any loan forgiveness amounts from its certified lenders and this canceled indebtedness will not result in taxable income to the business.

Payment Deferral: For principal amounts that exist after any loan forgiveness under the PPP, small businesses may defer payment of remaining principal, interest, and fee balances for at least 6 months and not more than a year. Under the PPP, all borrowers are allowed to apply for deferment and all lenders have to apply complete deferment for all remaining balances for at least 6 months. Thus, businesses under the PPP can get a substantial portion of their loan forgiven in the first 8 weeks after the loan is issued, and not have to make any payments for up to a year.

PPP Loan Terms: PPP loans can be as large as 250% of a business’s average monthly payroll costs over the last 12 months, not to exceed $10 million; provided, that, as noted above, salaries over $100,000 are not counted as payroll costs. PPP loans have a maximum interest rate of 4%. In addition, PPP loans only start to mature following the date an eligible business applies for loan forgiveness, as described in E. above, and can have a maximum maturity of ten (10) years from such date.

How to obtain a PPP Loan: PPP loans are made by SBA-certified lenders (over 800 financial institutions currently), in all 50 states, through delegated authority from the SBA. In addition, the SBA Administrator and Secretary of Treasury may further authorize additional lenders to join the program, as needed. SBA-certified lenders simply need to verify that a small business was in operation on February 15, 2020, and paid employee salaries and payroll taxes or paid independent contractors, as reported on Form 1099- MISC, for eligibility in the PPP. Thus, the process should be relatively simple. For more information from SBA, Click here to learn more

Economic Injury Disaster Loans and Loan Advance: In response to the COVID-19 pandemic, small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000. The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing. The loan advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue.

Funds will be made available within three days of a successful application, and this loan advance will not have to be repaid. To apply for a COVID-19 Economic Injury Disaster Loan, click here.