If Your Small Business is Negatively Affected by the Coronavirus, It Might be Eligible for an SBA Loan

By David Olsky

On March 27, 2020, The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. One of the most important provisions of the CARES Act is a major temporary expansion of the SBA Act called the Paycheck Protection Program.

The Paycheck Protection Program allows businesses with 500 employees or fewer (including independent contractors and sole proprietorships) that have been negatively affected by the Coronavirus to take loans of the lesser of 250% of their average monthly payroll costs or $10 million. Certain larger businesses (with a NAICS code of 72) may also be eligible if they have less than 500 employees per location.

The loans may be obtained through SBA-approved lenders. Many of the conditions associated with obtaining a loan issued by the Small Business Administration are waived. The loaned funds may be used to pay payroll, rent, mortgages, and certain other specific business expenses.

Importantly, this loan may not need to be paid back. If the borrower maintains a certain number of employees and also continues to pay them their full salary—or rehires them by June 30—the loan can be forgiven in full. If the borrower does not maintain the same number of employees or reduces their salaries, some or all of the loan may need to be repaid, but the conditions are lenient: 4% interest over 10 years with no recourse and no liability to the members or shareholders.

There are many questions about the Paycheck Protection Program that will need to be resolved, and the SBA has yet to issue guidelines and lenders are only starting to prepare for the likely deluge of applications. For example, there may be questions about who is an “employee,” and how employee salaries over $100,000 and independent contractor payments are treated as “payroll costs” for the purposes of calculating the amount that may be borrowed.

We encourage you to contact the attorneys at Fortis Law Partners LLC who can help you prepare an application and can answer any legal questions you may have concerning the Paycheck Protection Program.

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