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SS+D COVID-19 Response Team: Paycheck Protection Program – Cares Act March 30, 2020

March 31, 2020 | Sebaly Shillito + Dyer

The CARES Act, as passed by Congress on March 26, 2020, is intended to provide relief to individuals, as well as big and small businesses. For small businesses, in particular, the CARES Act provides for the “Paycheck Protection Program.” This program will provide $350 billion for Small Business Administration (SBA) loans and additional funding.

Some of the benefits of obtaining a loan under this program are that the guarantee fees are waived, there are no collateral requirements nor prepayment penalties, and payments can be deferred for six to twelve months.

The SBA’s 7(a) loan program is the primary program providing financial assistance to small businesses. The CARES Act will now expand the uses of 7(a) loans past its traditional uses (i.e. real estate, equipment, and working capital). Under the CARES Act, the allowable uses of 7(a) loans will now also include:

  • Payroll support (including paid sick, medical, or family leave);
  • Interests payments on any Mortgage payments;
  • Rent;
  • Utilities;
  • Employee Salaries;
  • Costs related to the continuation of group health care benefits during those periods of leave; and
  • Any other debt obligations that were incurred before the covered

These allowable uses are referred to as “covered loans.” And covered loans must be made during the “covered period,” which is from February 15, 2020 to June 30, 2020. The eligible entitles for these loans are any small business, nonprofit organization, and veterans organizations which have less than 500 employees. Businesses in certain industries must have below a gross annual receipts threshold to be eligible. Sole proprietors, independent contracts, or other eligible self-employed individuals may also be eligible for these covered loans. Nonprofit organizations that receive Medicaid reimbursements may not participate in the Program, however.

The Program will increase the maximum loan amount from $5Million to $10Millon under the 7(a) loan program. More specifically, the maximum loan amount under CARES is either $10 million or 2.5 times the business’s average monthly payrolls costs, whichever amount is lesser. Under the Program, certain payroll costs are excluded from the calculation of the maximum loan amount. Borrowers cannot co-mingle funds for another loan for the same purpose and cannot receive a loan under an SBA Economic Injury Disaster Loan for the same purpose.

Business applicants will need to certify that the loan is necessary to continue operations during COVID-19 and that the funds will be used toward payroll, mortgage, lease, or utility payments.

The SBA will provide additional guidance to both lenders and borrowers within the next few days. It will likely take a couple weeks for applications to be processed.

Businesses can find approved lenders at

The SS+D COVID-19 Response Team was formed to provide clients, colleagues, and friends of the Firm updates for the foreseeable future on COVID-19 issues facing businesses, executives, and employees. Please let us know if there are any items/issues you would like for us to track or summarize.

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Sebaly Shillito + Dyer