Forgivable SBA Loans Part of COVID Pandemic Relief

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David A. Holmes, Asset Protection, Litigation & Business Law Attorney, Punta Gorda, Florida

David A. Holmes, Attorney
David’s practice focuses on asset protection, corporate and business law, civil litigation with an emphasis in contract, commercial and construction disputes, and real estate.

President Trump has signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. It is the largest economic bill in U.S. History.  Below is a summary of one component of the Act—forgivable SBA loans for small business.

Forgivable SBA Loan Program

The CARES Act creates a new type of loan for the United States Small Business Administration (the “SBA”) to administer.  The loans are potentially forgivable up to 100% of the principal amount borrowed. Unlike typical SBA disaster loans, these forgivable loans are not tied directly to establishing losses suffered during the national disaster.  Rather, there is a presumption of negative impact from the COVID-19 pandemic.  Moreover, these loans do not require collateral or guarantees.


Businesses, including nonprofits, with less than 500 employees are eligible (unless the applicable industry has a higher size standard under SBA rules). The loan program is even available to sole proprietors, independent contractors, and self-employed individuals (subject to additional requirements).

Amount of Loan

Generally, the amount of the loan is capped at the lesser of $10 million or 2.5 times average monthly payroll costs in the year prior to January 31, 2020. Payroll costs include salary/wages/tips, sick/family leave/PTO, severance payments, group health benefits (including insurance premiums), retirement benefits, and other taxes assessed on employee compensation. However, for any employee who is paid more than $100,000 salary, only the amount up to $100,000 (prorated for the covered period) is calculated into the number.

Terms of Loan

An eligible borrower may receive one covered loan, and such proceeds may be used for: payroll costs; continuation of group health care benefits during periods of paid sick, medical, or family leave, or insurance premiums; salaries or commissions or similar compensation; interest on mortgage obligations; rent; utilities; and interest on other outstanding debt. The terms of the amount of any portion of the loan that is not forgiven will be for a term not to exceed 10 years and at an interest rate of no more than 4%.


The amount of the loan that is forgivable is the sum of the payroll costs, mortgage interest payment, rent, and utilities incurred or paid by the borrower during the 8-week period beginning on the loan origination date. Any portion of the loan that is forgiven is excluded from taxable income. If the recipient of the loan laid off employees or reduced wages/salaries of its workforce in the period between February 15, 2020 and June 30, 2020, the amount of forgiveness is reduced proportionally by any (a) any reduction in employees retained compared to historical levels, and (b) any decrease in pay of any employee beyond 25% of their historical compensation.

To encourage workforce stabilization, the CARES Act takes into account that many businesses might already have or are planning to lay off personnel or cut salaries. If such changes are made between February 15, 2020 and April 26, 2020, those changes are not counted if the business rehires the number of personnel or returns the adjusted salary, as applicable, by June 30, 2020.

The SBA has established a website for online COVID-19 Economic Injury Disaster Loan applications at

The attorneys at the Farr Law Firm are ready to assist business and individual clients in the many questions and challenges presented by the unfolding pandemic.