CARES ACT Stimulus Loans for Businesses

The sweeping coronavirus aid package set for a House vote today provides $349 billion for the Small Business Administration to guarantee loans to small businesses.

The legislation calls for the loan money to be distributed using the existing framework of the Small Business Administration’s 7(a) program. The 7(a) program is a joint partnership between private financial lenders, which issue the loans, and the SBA, which guarantees them.

Who is eligible for the loans?

Businesses and nonprofits with fewer than 500 employees are generally eligible, with some exceptions. Self-employed workers and gig workers, such as drivers for ride-sharing apps, are also able to apply for loans. Borrowers will need to have been in business as of Feb. 15, 2020, and paid employee salaries and payroll taxes, or paid independent contractors, or had self-employment income. Borrowers must also certify that their business has been negatively affected by the coronavirus crisis.

What kind of credit profile do I need to borrow?

The main underwriting standards for eligibility will be proof of payroll costs, and will be significantly relaxed compared with 7(a) loans issued during typical times, according to Senate staffers who helped draft the legislation. Trade groups and lenders expect the SBA to release detailed guidelines in coming days on underwriting and application criteria.

How do I apply?

The SBA guarantees the loans, so borrowers will need to apply through banks, credit unions and other lenders. Approximately 1,800 private lenders are already approved to issue 7(a) loans, and at a press briefing Wednesday, Treasury Secretary Steven Mnuchin said the department plans to issue new regulations that will make it possible for almost all FDIC-insured banks to make SBA loans. So the best way to begin is to approach your lender and inquire about applying for a 7(a) small business loan. If your lender doesn’t offer it, try another one.

How long will it take to get the money?

Mr. Mnuchin said he expects that “by the end of next week, we will have a very simple process where these can be made and disbursed in the same day.”

How much money can I apply for?

The maximum loan amount is capped at 2.5 times the business’s average monthly payroll costs, or $10 million, whichever is less. “Payroll costs” is defined to include wages, health and retirement benefits, and payments to independent contractors. There is a cap of $100,000 of annual costs that can be taken into account for each employee or contractor. For the self-employed, “payroll costs” means net earnings from self employment (capped at $100,000).

What is the interest rate? Are there fees?

The bill sets the maximum interest rate for these loans at 4% and allows borrowers to defer payments for six months to a year. It is expected that the government will cover the cost of any loan fees.

What if I can’t repay the loan?

There is a loan forgiveness component included in the bill for businesses that retain their workers or rehire ones that were laid off. Those businesses would be eligible for forgiveness on portions of their loans used for certain costs—including payroll, rent, mortgage obligations and utilities—that are incurred during an 8-week period starting on the loan’s origination date. The amount of forgiveness will take into account the number of workers retained or rehired.

I’ve had to lay off my employees because of the crisis, and shut down most of my operations. Am I still eligible to apply for a loan?

SBA officials won’t comment on details while the legislation is pending, but the bill draft specifies that borrowers must acknowledge that the loan funds will be used to “retain workers and maintain payroll or make mortgage payments, lease payments and utility payments.”

What other help is available?

Small businesses in all 50 states and the District of Columbia are eligible to apply for a separate SBA program that provides economic disaster loans. These are low-interest loans issued directly from the agency. This option may make sense for businesses that need a smaller amount of loan money, since the program’s maximum loan amount is $2 million. The loans carry a 3.75% interest rate for businesses and a 2.75% rate for nonprofits. Businesses that are interested in this program should apply directly with the SBA.

Where can I go for more information?

Loan information will be available from a variety of lenders and at

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