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Coronavirus Aid, Relief, and Economic Security Act – SBA 7(a) Loans

 

 

Last week, Congress approved the Coronavirus Aid, Relief, and Economic Security Act to provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.  The following information summarizes the key provisions of the legislation as applied to the FUELIowa membership.  A key piece of the legislation is a new 7(a) loan program available via the Small Business Administration (SBA).  The maximum loan amount is 2.5 times the average monthly amount of payroll costs not to exceed $10,000,000.  The SBA 7(a) loan program includes a provision making portions of the loan forgivable.  Portions of the loan amount eligible to be forgiven include loan amounts used for payroll costs, salaries, benefits, rent on a lease agreement and mortgage costs attributable to interest during the covered period.  For the purpose of loan forgiveness, the covered period is defined as March 1, 2020 through June 1, 2020.  

 

The amount of the loan eligible for forgiveness may be reduced accordingly to reflect reductions in employees and employee salaries.  SBA 7(a) loans will be administered by SBA qualified lenders.  FUELIowa strongly recommends reaching out to your lending institution immediately to see if they qualify and begin gathering documentation for a loan application.  The SBA has not released rules surrounding the application process but they are imminent.  FUELIowa suggests members begin gathering the following documentation to prepare an application:

  • IRS payroll tax filings.
  • State income, payroll, and unemployment insurance filings.
  • Financial statements verifying payments on debt obligations incurred before the covered period.
  • Recent mortgage or lease documentation.
  • Utility bills.
  • Certification of employees citizenship and residence in United States.
  • For audit purposes, it has been suggested that loan recipients consider depositing funds in a separate account for ease of accounting.

 

Key Provisions in the CARES Act (Sections 1101 - 2209) :

  • $350 billion to aid small businesses with less than 500 employees through a new special type of SBA 7(a) loan called the “Paycheck Protection Program” to help them make payroll and other expenses. 
  • Employee retention credit for employers subject to closure due to the coronavirus pandemic. Specifically, a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the coronavirus crisis will be available to employers whose (1) operations were fully or partially suspended, due to a COVID-19-related shutdown order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year.
  • A delay in employer payroll tax payments.
  • Changes to allow companies to utilize net operating losses to increase funding.
  • A change to the loss limitation applied to pass-through businesses and sole proprietors to increase funding.
  • A change that allows companies to recover AMT credits.
  • A change increasing the amount of business expenses companies can deduct on tax returns.

    Click here for a detailed summary to Secure CARES Act Stimulus Funding for Small Business Owners “Phase 3” which was signed into law last Friday courtesy from Squire Patton Boggs (SPB). 

Federal Covid-19







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