To retain the law firm of John R. Foley, P.C. to assist you with applying for a forgivable SBA 7(a) loan pursuant to the 2020 CARES Act, please contact attorney Patrick A. Foley directly. He can be reached on his cell phone (313) 610-2036, or by email at pafoley@jrfpc.net.

On March 25, 2020, the U.S. Senate passed (unanimously) the “Coronavirus Aid, Relief, and Economic Security Act” (the “CARES Act”).

The relevant portion of the CARES Act to small businesses provides much needed stimulus to small businesses in response to the economic distress caused by the Coronavirus (COVID-19) pandemic.

On March 27, 2020, the CARES Act was passed by the U.S. House of Representatives on a voice vote, and President Trump signed the bill into law that same day.

Several changes were made between the Senate and the House, the most drastic of which was to reduce the “multipler” of average payroll and debt obligation expenses used in the calculation of maximum loan amount from 4 to 2.5. THe 4 multipler made sense, because the loan was intended to help businesses over a 4 month period from March 1, 2020 to June 30, 2020.

Section 1102 of the Act, titled “Packcheck Protection Program”, implements the forgivable loan program, through amendment of the existing Section 7(a) of the Small Business Act (15 U.S.C. 636(a)). The relevant additions are as follows:

Regarding the maximum amount of the loan, the Act states:

 (E) MAXIMUM LOAN AMOUNT.—During the covered period, with respect to a covered loan, the maximum loan amount shall be the lesser of—

(i)         (I)        the sum of—

(aa)      the product obtained by multiplying—

(AA)     the average total monthly payments by the applicant for payroll costs incurred during the 1-year period before the date on which the loan is made, except that, in the case of an applicant that is seasonal employers as determined by the Administrator, the average total monthly payments for payroll shall be for the 12-week period beginning February 15, 2019, or at the election of the eligible recipient, March 1, 2019, and ending June 30, 2019; by

(BB)     2.5; and

(bb)      the outstanding amount of a loan under subsection (b)(2) that was made during the period beginning on January 31, 2020 and ending on the date on which covered loans are made available to be refinanced under the covered loan; or

(II)       if requested by an otherwise eligible recipient that was not in business during the period beginning on February 15, 2019 and ending on June 30, 2019, the sum of—

(aa)      the product obtained by multiplying—

(AA)     the average total monthly payments by the applicant for payroll costs incurred during the period beginning on January 1, 2020 and ending on February 29, 2020; by

(BB)     2.5; and

(bb)      the outstanding amount of a loan under subsection (b)(2) that was made during the period beginning on January 31, 2020 and ending on the date on which covered loans are made available to be refinanced under the covered loan; or

            (ii)        $10,000,000.

 

Regarding the allowable uses of “covered loans”, the Act reads:

(F) ALLOWABLE USES OF COVERED LOANS.—

(i)         IN GENERAL.—During the covered period, an eligible recipient may, in addition to the allowable uses of a loan made under this subsection, use the proceeds of the covered loan for—

(I)        payroll costs;

(II)       costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;

(III)     employee salaries, commissions, or similar compensations;

(IV)     payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation);

(V)       rent (including rent under a lease agreement);

(VI)     utilities; and

(VII)    interest on any other debt obligations that were incurred before the covered period.

 

Where employers must be careful is in making sure that the loan is used for forgivable purposes Forgiveness is covered by Section 1106 of the CARES Act, which is titled, “Loan Forgiveness” In relevant portion, and subject to a lot of other defining, explanatory, and exclusionary language, the relevant portion reads:

(b)        FORGIVENESS.—An eligible recipient shall be eligible for forgiveness of indebtedness on a covered loan in an amount equal to the sum of the following costs incurred and payments made during the covered period:

(1)        Payroll costs.

(2)        Any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation).

(3)        Any payment on any covered rent obligation.

(4)        Any covered utility payment.

 

If you need help or information on obtaining assistance for your small business during this Coronavirus/COVID-19 crises, please contact John R. Foley, P.C. We can be retained through a fully electronic process, without in-person meetings, and we can provide you with assistance and guidance via email, telephone, and video conferencing.