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CARES Act: Treasury Department CARES ACT-SMALL BUSINESS LOANS: The Treasury Department Issues Guidance for Loans Pursuant to the Paycheck Protection Program, SBA 7(a) Loan Program

Author: Bruce S. Goodman, Esq.

The United States Department of Treasury issued guidance to both borrowers and lenders for loans to be extended under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (CARES Act) on March 31, 2020. (Our prior alert concerning this loan program can be found here:

Treasury's Guidance answers some of the questions left open in the statute. Here is what you need to know:

For Borrowers:

Application Dates

  • April 3, 2020: Small businesses and sole proprietorships can apply for and receive loans through existing SBA lenders.
  • April 10, 2020: Independent contractors and self-employed individuals can apply for and receive loans through SBA lenders.
  • June 30, 2020: The deadline to file a loan application.

Application Form

  • The SBA has made a sample form application available on its website:
  • The loan application must be signed as follows:
    • for a sole proprietorship, by the sole proprietor;
    • for a partnership, all general partners, and all limited partners owning 20% or more of the equity of the firm;
    • for a corporation, all owners of 20% or more of the corporation;
    • for a limited liability company, all members owning 20% or more of the company;
    • if the applicant is owned by the trust, any trustor.
  • A borrower must, among other things, certify in the application:
    • (i) current economic uncertainty makes the loan request necessary to support ongoing operations;
    • (ii) the loan proceeds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments;
    • (iii) documentation verifying the number of full-time employees on payroll as well as the dollar amount of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the 8-week period following the loan will be provided to the lender;
    • (iv) during the period beginning on February 15, 2020 and ending on December 31, 2020 the borrower has not and will not receive another loan under the program.

Employees Making more than $100,000

  • Treasury Guidance clarified that employees making more than $100,000 per year can be included in payroll calculations but are capped at $100,000.


  • Loan applicants will be required to supply lenders with payroll documentation in addition to the completed application.

Loan Proceeds Use

  • Payroll costs including benefits;
  • Interest on mortgage obligations incurred prior to February 15, 2020;
  • Rent, under lease agreements enforced prior to February 15, 2020, and
  • Utilities, for which service began prior to February 15, 2020.

Loan Terms

  • Amount: Loans can be for up to two months of the applicant's average monthly payroll costs from the last year plus an additional 25% of that amount.
  • Interest Rate: 0.5% fixed-rate.
  • Term: 2 years (there are no prepayment penalties).
  • No collateral or personal guarantee is required.
  • All loan payments are deferred for 6 months. Interest continues to accrue during the deferral period.

Loan Forgiveness

  • The Guidance clarifies that it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs (i.e., interest, rent, and utility payments).
  • A borrower will owe if it uses loan proceeds for anything other than payroll costs, mortgage interest, rent, and utility payments during the 8 weeks after receiving the loan.

Requesting Loan Forgiveness

  • A borrower can submit a request to the lender servicing the loan.
  • The request will include documents verifying (i) the number of full-time employees and pay rates, and (ii) payments of eligible mortgage, lease, and utility obligations.
  • A certification that the documents are true, and that the borrower used the forgiveness amount to pay employees and make eligible mortgage interest, rent and utility payments.
  • A lender must make a decision regarding forgiveness within 60 days.

For Lenders:

  • Eligible Lenders: (i) all existing SBA certified lenders; and (ii) all federally insured depository institutions, federally insured credit unions, and Farm Credit System institutions are eligible to participate. (New lenders must submit their application to the SBA.)
  • SBA Guaranty: The loans are 100% guaranteed by the SBA.
  • Fees Waived: The SBA waives all guarantee fees including upfront and annual servicing fees.
  • Underwriting: A lender must verify (i) a borrower was in operation on February 15, 2020, (ii) had employees for whom the borrower paid salaries and payroll taxes, and (iii) the dollar amount of average monthly payroll costs.
  • Lender Compensation: (i) 5% for loans $350,000 and under, (ii) 3% for loans greater than $350,000 up to $2 million, and (iii) 1% for loans greater than $2 million. A lender may not collect a fee from the applicant.
  • Agents: The following may act as an agent for an applicant (i) an attorney, (ii) an accountant, (iii) a consultant, (iv) an individual who prepares an applicant's application and is employed and paid by the applicant, (v) an individual who assists a lender with originating, dispersing, servicing, liquidating, or litigating SBA loans, (vi) a loan broker, or (vii) any other individual or entity representing an applicant by conducting business with the SBA.
  • Agent Compensation: Agents are paid from lender fees by the lender. An agent may not collect a fee from an applicant. The agent's fees are: (i) 1% for loans of $350,000 and under, (ii) .50% for loans greater than $350,000 up to $2 million, and (iii) .25% for loans greater than $2 million.
  • Secondary Market: Loans made pursuant to this program can be sold in the secondary market.