SBA loans: What you need to know

stimulus package money

Updated 3/31/20

Disclaimer: I am a business strategist, not an attorney or banker. As with any important transaction, make sure you receive professional advice to assess your risk.

For small business owners, today may mark one of the most important days in American history: The CARES Act has been signed into law.  (Read the legislation: Coronavirus Aid, Relief, and Economic Security Act

DOWNLOAD: U.S. Chamber of Commerce Coronavirus Emergency Loans Small Business Guide and Checklist

RELATED CONTENT – CARES Act and SBA loans: How businesses can leverage loan relief

Here are some observations I made before the law was signed:

Title 1 of the CARES Act includes the Paycheck Protection Program, which may impact many members who can pass the government’s standards for being impacted by COVID-19.

For those companies of less than 500 employees, the CARES Act provides federally guaranteed loans for 250% of a company’s average monthly payroll which could be forgiven if a company were to maintain its payroll through June 30.

The program will cover payroll costs, paid sick leave, employee salaries, health insurance premiums, mortgage payments, and other debt obligations to provide immediate access to capital for small businesses who have been impacted by COVID-19. CARES also provides other substantial relief to small business, not listed in this post.

The implications of this stimulus are very significant. It provides incentive for businesses to keep valuable employees through the crisis, even if their revenue and profit have been dramatically impacted.

Who Qualifies

  • Independent contractors
  • Small businesses with less than 500 employees
  • Sector 72 (under the US NAICS coding system) businesses with less than 500 employees per location
  • 501(c)(3) nonprofit entities with less than 500 employees
  • Entities that meet the “size standard” for the industry is outlined by the administration


These SBA loans will be administered by over 800 qualified SBA banks. Large SBA lenders such as Chase and Wells Fargo expect to have online portals operable in the first half of April. Most applications will be completed online. There will be a run on these programs so make sure you have assembled your documentation in digital form in advance.

These forgivable loans can complement Economic Injury Disaster Loans (EIDLs). EIDL loans are administered by the SBA. They include a provision for Disaster Recovery Grants, which have a $10,000 limit, and assume that borrowers do not have access to other financing. Whether you’ve already received an EIDL unrelated to COVID-19 or you receive a COVID-19 related EIDL and/or Emergency Grant between January 31, 2020 and June 30, 2020, you may also apply for a PPP loan. If you ultimately receive a PPP loan or refinance an EIDL into a PPP loan, any advance amount received under the Emergency Economic Injury Grant Program would be subtracted from the amount forgiven in the PPP.

Other Considerations

  • Applicants to the PPP will make “good faith” certifications that the loan is necessary. While the final language is not yet available, it appears the role of banks will be to confirm that applicants are legitimate businesses with payroll as of March 1, 2020.
  • The loan limit is $10 Million.
  • No personal guarantees will be required.
  • The maximum maturity of the loan is 10 years.
  • There are exclusions in the calculations based on employees earning $100K per year.
  • Payroll is calculated over the 12 months prior to the application period. There are other calculations for seasonal companies.
  • Employers can use loan proceeds to rehire employees they have already laid off.
  • If you use funds for other purposes or ones that are disallowed, funding will be treated as a low interest loan (around 4%).
  • Banks could be physically closed during shelter in place.
  • There are provisions to extend or refinance existing Disaster Delivery Loans, although there is also language that suggests you can’t “double dip.”
  • Banks’ capital requirements will not be impacted by their participation.

I know we are all focused on the health and welfare of our employees and our families during this difficult time. I sense the CARES Act, in concert with the massive infusion of capital into our markets by the Federal Reserve could mark a turning point in our economic crisis.

Related resources 

Category: Financials

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About the Author: Marc Emmer

Marc Emmer is President of Optimize Inc., a management consulting firm specializing in strategic planning. Emmer is a sixteen-year Vistage member and a Vistage speaker. The release of his second book, “Momentum, Ho

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  1. Randall Brodzik

    March 30, 2020 at 6:37 am

    I have seen the figure of 250% or 2.5 times average monthly expenses or a maximum of $10M. However reading the text of the bill indicated that while the maximum is still $10M, the alternate is 400% or 4 times the average monthly expenses. This is obviously different than the earlier version of the bill.

  2. Marc Emmer

    April 2, 2020 at 5:40 am

    Randel. The interpretation of the bill has changed daily. Obviously the “bill” has been converted into a set of regulations by the SBA and that guidance is what will govern the applications.

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