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Stimulus bill proposes $299B for small-business interruption loans

The Senate is expected to approve a $2 trillion emergency stimulus bill to aid businesses, workers and the health-care system, which is struggling to manage the coronavirus pandemic.

The Republican-led Senate will vote on the legislation — the nation’s largest economic rescue bill in history — on Wednesday afternoon.

The more than 500-page proposal builds on previous aid that had centered on vaccines, emergency response, sick and family medical leave for workers, and food aid.

The stimulus bill includes direct payments to Americans, money for hospitals and more than $299 billion for Small Business Association loans.

Key proposals to aid small businesses:
• $299 billion would be set aside for small-business interruption loans.
• Businesses with 500 or fewer employees could get an SBA loan worth as much $10 million from March to December 2020.
• Loans could be used for payroll support, employee salaries, mortgage payments, rent, utilities and debt obligations.
• Businesses could receive loan forgiveness equal to the amount of maintaining payroll continuity from March to December 2020.

The funding supports 7(a) loans, the SBA’s primary program for providing financial assistance to small businesses. The bill also changes provisions on current 7(a) loans to provide small-business owners with relief. The proposals are outlined below.

After Wednesday’s expected Senate vote, the bill would go to the Democratic-controlled House. The schedule for votes in that chamber are unclear.

New small-business interruption loans
Businesses with 500 or fewer employees could receive 7(a) loans from March to December 2020 to help manage COVID-19’s effects on their operations.

The maximum small-business interruption loan amount would be either $10 million or a calculation using 2019 expenses — whichever is less. To come up with the number based on the 2019 expenses, a business would calculate what your average monthly expense was for payroll, mortgage payments, rent payments, and payments on any other debt obligations, and multiply the number by four.

Seasonal employers would look at the period of March 1, 2019, to June 30, 2019, and calculate the average monthly expenses for payroll, mortgage payments, rent payments, and payments on any other debt obligations, and multiply the number by four.

Loan recipients could use the loan for:

  • Payroll support, including paid sick, medical or family leave, and costs related to continuing group health care benefits during those periods of leave
  • Employee salaries
  • Mortgage payments
  • Rent
  • Utilities
  • Any other debt obligations incurred before March 2020

Borrowers could not double up on COVID-19-related loans. If a business received a loan under section 7(b)(2) of the Small Business Act to cover payroll related to COVID-19, it couldn’t take a loan under the provision in the stimulus act.

Another provision would require officials either to waive or reduce fees as much as possible on loans granted during 2020, in lieu of the fee otherwise applicable under section 7(a) of the Small Business Act.

Under the bill, the SBA would guarantee 100% of a loan balance at the time of the disbursement of the loan. 7(a) loans usually cover a maximum of 85% of an outstanding balance. The bill proposes returning to that standard on Jan. 1, 2021.

Businesses that take a 7(a) loan between March and December 2020 would have loans deferred for not more than one year. Lenders would receive guidance on the deferment process within a month of the bill being signed into law.

Commitments for 7(a) loans would still apply.

Businesses could also apply for an SBA express loan worth as much as $1 million SBA, an increase from the current $350,000 limit. Express loans receive a response from the administration within 36 hours. Language in the bill says the amount is likely to return to $350,000 on Jan. 1, 2020.

Loan forgiveness
Businesses with 7(a) loans guaranteed between March 1 and June 30, 2020, would be eligible for loan forgiveness equal to the amount of maintaining payroll continuity during that time period.

Payroll costs would include:

  • Compensation of an individual employee in excess of $33,333 from March 1 to June 30, 2020
  • Qualified sick leave and family leave wages allowed under the Families First Coronavirus Response Act

The loan-forgiveness amount couldn’t exceed total payroll costs incurred from March 1 to June 30, 2020. The amount would be reduced if the business cuts staff during that time period or reduces employee pay by more than 25 percent. The reduction is calculated from a formula, which changes if a business is a seasonal employer or employs tipped workers.

To apply for loan forgiveness, a business would have to submit documentation and make a good faith certification that the uncertainty of the current economic conditions justify the loan request.

The lender would have to make a decision within 15 days of receiving a loan forgiveness application.

Grants for small business support services
The bill would also appropriate $265 million for grants to small-business development centers and associations establishing hubs for COVID-19 information for businesses.

Funded centers will provide instruction, training and advising related to the pandemic’s effects.

Another $10 million in grants would be set aside for minority business centers of the Minority Business Development Agency providing instruction, training and advising to business owners affected by the pandemic.

– The Associated Press

About Michaela Paukner, mpaukner@wislawjournal.com

2 comments

  1. Does anyone know how to apply for this small business interruption loan?

  2. Lesser of 25% or 10K? Is this correct? I have not read those numbers anywhere else and that seems like an extraordinarily small amount…

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