Small Business Interruption Loans
As part of the CARES Act that passed the Senate and is pending in the House, the SBA 7(a) Loan Program would provide significant assistance to small businesses in the form of potentially forgivable loans. Eligible businesses include:
- Small business concerns
- Any for-profit business with fewer than 500 employees that does not receive Medicaid expenditures
- Any not-for-profit with fewer than 500 employees that does not receive Medicaid expenditures
These Small Business Interruption Loans would be available for a covered period of March 1, 2020 to December 31, 2020. Maximum loan amount is determined as follows:
- Average total monthly payments for payroll during the 1 year period before the date on which the loan is made
- Multiplied by 2.5
- This is subject to a cap of $10 million.
Payroll Costs means the sum of salary, wage, commission or similar compensation, cash tips or equivalent, vacation, parental, family, medical or sick leave, termination benefits, payments for group health benefits (including premiums), payment of retirement benefits, and state and local payroll taxes. It can also include compensation to or income of a sole proprietor or independent contractor.
Payroll Costs excludes payment in excess of an annual salary of $100,000 (for employees, sole proprietors and independent contractors).
Small Business Interruption Loans may be used for the following purposes:
- Payroll support, including paid sick, medical or family leave and costs related to the continuation of group health care benefits during those periods of leave;
Employee salaries;- Mortgage payments;
- Rent;
- Utilities;
- Payment of other debt obligations incurred before the covered period (i.e., incurred before March 1, 2020).
To be eligible for a Small Business Interruption Loan, the applicant must have been in operation on March 1, 2020 and had employees for whom applicant paid salaries and payroll taxes.
The loans potentially include a one year deferral of all payments.
A key aspect of these Small Business Interruption Loans is the potential for loan forgiveness. The loan forgiveness applies to loans made between March 1, 2020 and June 30, 2020. Some of the rules are:
- The amount potentially eligible for forgiveness is the cost of maintaining payroll during the period March 1, 2020 to June 30, 2020. It appears that the cost of maintaining payroll includes payroll expenses and payments on eligible debt obligations. There is some ambiguity in the Act that needs clarification.
- Forgiveness is reduced if employment levels have dropped compared to the same period in 2019.
- Forgiveness may be reduced if employee compensation has been reduced by more than 25% (with a formula for determination).
- To help the restaurant and hotel industry employees, there are exceptions for tipped workers to allow forgiveness for additional wages paid to tipped workers.
Congress would allocate $299.4 billion to fund these loans.
Tim Lynn
315-766-2118
