Financial Industry Alert
The Coronavirus Aid, Relief, and Economic Security (CARES) Act – which was introduced into the Senate on March 19, 2020, as the third phase of Congress’s response to COVID-19 – includes a Small Business Interruption Loan program. The proposed program would, among other things, expand the scope of the Small Business Administration’s available 7(a) loan guarantees during a “covered period” beginning on March 1, 2020 and ending on December 31, 2020. (The Small Business Administration (SBA) provides 7(a) loan guarantees for certain loans made by participating lending institutions to qualifying small businesses.) Such changes to the 7(a) loan guaranty framework under the proposed program include, among others:
The proposed CARES Act would appropriate $300 billion for the cost of such 7(a) loan guarantees and various related expenses. In addition, the proposed CARES Act provides COVID-19-related relief in other areas of the SBA’s purview, including entrepreneurial development, the women’s business center program, the minority business development agency, and a waiver of certain prepayment penalties.
Separately, under its Economic Injury Disaster Loan program, the SBA provides small businesses with working capital loans of up to $2 million intended to help overcome a temporary loss of revenue. The SBA’s economic injury disaster loans are generally available to businesses that have suffered a substantial economic injury and are located in declared disaster areas. As of this writing, COVID-19 economic injury disaster areas have been declared in the majority of U.S. states. The SBA provides a list of such states here.
The SBA has also traditionally provided a number of other loan resources for small businesses, each of which imposes certain restrictions on the use of loan proceeds. These programs include: the Express Loan Program (providing loans up to $350,000 for no more than 7 years with an option to revolve); the Community Advantage Loan Pilot Program (allowing mission-based lenders to assist small businesses in underserved markets, with a maximum loan size of $250,000); the 504 Loan Program (designed to foster economic development and job creation/retention, limiting use of loan proceeds to the acquisition or eligible refinance of fixed assets); and the Microloan Program (involving loans made through nonprofit lending organizations to underserved markets, with a maximum loan amount of $50,000 and average loan size of $14,000).Please reach out to your Orrick contact for any questions related to these SBA loan resources or if you require assistance applying to an SBA program.