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The CARES Act: Items in the SBA 7(a) Loan Program

small business owner during a campaignThe Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed by President Trump on March 27th, includes small business relief in the form of SBA “paycheck protection” loans. The SBA 7(a) loan program primarily aims at supporting small businesses financially. Here are the pivotal provisions of the program.

Highlights of the SBA 7(a) Loan Program
  • $350 billion in SBA 7(a) loan program guarantees subsidies and additional funding for SBA programs.
    • Loans can be issued to any business, 501(c)(3) nonprofit organization, veterans organization, or tribal business, provided that they do not have more than 500 employees (or other existing statutory limits for a specific industry or entity)
    • The applicable loan program covered period starts on February 15, 2020 and ends on June 30, 2020
    • The maximum SBA 7(a) loan program amount will be the lesser of $10 million or an amount calculated based on a formula on payroll costs from the prior year of the loan date
      • Payroll costs are capped at $100,000 on an annualized basis for each employee
    • Loans were guaranteed by the Federal government through December 31, 2020
      • Post-December 31, 2020, the guarantee percentages are 75% for loans exceeding $150,000 and 85% for loans of 150,000 or less
  • Applicable loan uses include – salaries, payroll support (including paid sick, family, or medical leave), mortgage payments, rent, and utilities during the covered period.
  • Loan Forgiveness – Borrowers of SBA 7(a) loan program will be eligible to apply for loan forgiveness equal to the amount spent by the borrower during an 8-week period after the loan closing date on payroll costs, interest on mortgages, payments of rent, and utility payments, in each case that were in place before February 15, 2020.
    • The loan forgiveness amount would be reduced in proportion to any reduction in employees retained compared to the prior year and to the reduction in pay of any employee beyond 25% of the prior year’s compensation
  • Notable loan terms for the CARES Act
    • An interest rate of 1%
    • Maturity of 2 years
    • Administrative fees for SBA 7(a) loans program will be reduced to the maximum extent possible or will be waived
    • Collateral and personal guarantee requirements are waived
    • No prepayment penalty
We Are Here to Help

The SBA 7(a) loan program was created for the wellness of small business entrepreneurs during the COVID-19 period. We have curated some helpful resources on our COVID-19 updates and resources page and will continue to update it as new information becomes available.

Please contact us if you have questions about these updates and how they may affect your personal and/or business situation. We will also provide you with other kinds of financial advice to help you make the right decisions for you or your business.

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