Emergency small business relief – CARES ACT

By Christopher J. Graham and Joseph P. Kelly

Every “small” business (less than 500 employees) should give serious consideration to taking advantage of SBA guaranteed loans under the Coronavirus Aid, Relief and Economic Security (CARES) Act, whether you’re an entity employing many people or even just a sole proprietor or independent contractor.

The “forgiveness” aspect of the loan is attractive. Subject to certain documentation requirements, you won’t have to repay the loan to the extent you use loan proceeds for costs paid or incurred – during the 8-week period starting with loan origination – for “payroll costs,” interest on “covered mortgage obligations “and payments on any “covered rent obligation” or “covered utility obligation” – as those terms are defined in the Act.

The 1% interest rate is attractive and so is deferral of payments for at least 6 months, or up to one year; and there’s no personal guarantee or collateral requirement, at least to start.

Even self-employed persons may borrow funds to cover “payroll costs” and “covered” “rent,” “utility,” and mortgage interest payments – and then, subject to the documentation requirements, obtain loan forgiveness for amounts paid to cover those costs.

If you obtain this sort of loan and pursue loan forgiveness, it will be critical to comply with the documentation requirements that are a condition for loan forgiveness.

You should consult with your banker for details and presumably the SBA will have more information soon. We would expect the SBA to post details on the loan process soon.

Remember, if you already have an SBA loan, the Act provides you relief as well. There is a separate section addressing those existing loans.

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