How to Obtain an SBA Loan and Have it Forgiven

April 3, 2020 NAHB Update

In recent weeks, Congress has adopted three bills aimed at stabilizing the economy, with more to come. The most notable of these was the $2.2 stimulus package (the CARES Act) that President Trump signed into law on March 27. This law contains a nearly $350 billion federal small business loan protection program called the Paycheck Protection Program (PPP) that will provide significant loan forgiveness for small businesses with fewer than 500 employees if employers meet certain criteria.

Loan Forgiveness

  • Under the new PPP loan program in the CARES Act, small businesses with fewer than 500 employees can take out loans equal to 2.5 times their average monthly payroll from 2019 with the total capped at $10 million. For many businesses that meet key conditions on the use of these funds, the loans may be forgiven.
  • Businesses applying for an Economic Injury Disaster Loan may request an advance in the amount of $10,000 to be delivered within three days of the request. An applicant will not be required to repay this advance if the funds are used to cover payroll, provide sick leave or cover other business costs, even if the applicant is subsequently denied a loan under the EIDL program.

A Broad Overview of the 3 Bills: How They May Apply to Your Business

  • Stimulus Resources for NAHB Members is a seven-page online document that explains two Small Business Administration lending programs – SBA’s Paycheck Protection Program (PPP) 7(a) loans and its Economic Injury Disaster Loans (EIDL).
  • The summary also looks at employee retention credits, delay of employer-paid payroll tax payments, net operating loss (NOL) modifications, and other important measures that may apply to your business.
  • As noted above, the two SBA lending programs are critically important because for many businesses that meet key conditions on the use of these funds, the loans may be forgiven.

More Details on PPP and EIDL Loan Forgiveness Requirements

  • Another online document, CARES Act and Small Business Lending Programs, is a five-page piece that explains eligibility requirements for the two lending programs, the business purposes for which the loans can be sought, and the conditions required for loan forgiveness.
  • Under SBA’s PPP 7(a) loan program, recipients may be eligible for forgiveness if the loan is used for approved purposes, including up to eight weeks of payroll, if the employer does not release employees or reduce salaries.
  • Businesses applying for an EIDL loan may receive an emergency grant of up to $10,000 within three days after the SBA receives the application. An applicant will not be required to repay this advance if the funds are used to:
  • Cover payroll;
  • Provide paid sick leave to employees unable to work due to COVID-19;
  • Make rent or mortgage payments; and
  • Cover other business costs.

Applicants will not be required to pay the emergency $10,000 grant even if they are subsequently denied a loan under the EIDL program.

Resources for HBAs

  • 501(c) nonprofits, including many of NAHB’s state and local federation associations, may be eligible for an EIDL loan, including a forgivable emergency grant up to $10,000, if less than 50% of the annual expenses go to lobbying efforts.
  • The online document, Stimulus Resources for State and Local Associations, gives NAHB’s HBA partners a sense of whether they may be eligible.

Other Key Resources and Tools

  • NAHB has also prepared an online FAQ for businesses considering applying for a PPP 7(a) loan. The FAQs cover eligibility, purposes for which funds can be used, loan forgiveness conditions, and documents needed for an application.
  • NAHB has been conducting a series of webinars on the small business loan programs and tax relief measures under the stimulus bill. Recordings of the webinars will be available soon. The final Small Business Loans webinar will be held today at 1 p.m. ET. Register now.
  • NAHB has prepared a wide range of information to help members navigate the crisis. These resources are available at org/coronavirus.

Note: NAHB is providing this information for general information only. This information does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind nor should it be construed as such.

For more information, contact Alex Strong, at 800-368-5242 x8279 or Heather Voorman at x8425..

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