Requirements for Expanded SBA 7(a) Loan Program Under the CARES Act (Paycheck Protection Program)

Many of our clients are wondering whether they are eligible for the expanded loan assistance under the recently passed Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act expands the SBA’s 7(a) loan program, which is its primary small business loan program, by authorizing $349 billion for loans to small businesses impacted by the current economic conditions arising from COVID-19.

Under the CARES Act Paycheck Protection Program, lenders are delegated authority to make and approve loans covered under the CARES Act, subject to a determination that the applicant both (1) was in business as of February 15, 2020 and (2) had employees for whom it paid salaries and payroll taxes or paid independent contractors, as reported on a 1099-MISC form.

Below we have outlined further requirements of the CARES Act to help our clients better understand whether they may be eligible for relief under the loan program.

Who Is Eligible?

The SBA 7(a) loan program already covers small business concerns (as defined under SBA rules). A small business concern must (1) be organized for profit, (2) have a place of business in the U.S, (3) operate primarily within the U.S. or make a significant contribution to the U.S. economy through the payment of taxes or the use of U.S. products, materials, or labor, (4) be independently owned and operated, (5) not be dominant in its field on a national basis, and (6) meet size standards based primarily based on number of employees or average annual receipts. Small business concerns are eligible for loans under the CARES Act.

In addition, the CARES Act expands loan access to:

  • Individuals operating as sole proprietorships.
  • Individuals operating as independent contractors.
  • Eligible self-employed individuals, which are those who (1) regularly carry on any trade or business within the meaning of section 1402 of the Internal Revenue Code, and (2) would be entitled to receive paid leave during the taxable year pursuant to the Emergency Paid Sick Leave Act if the individual were an employee of an employer (other than himself or herself).
  • Any nonprofit organization (under 501(c)(3) of the Internal Revenue Code), veterans organization (under Section 501(c)(19) of the Internal Revenue Code), or Tribal business concern (under Section 31(b)(2)(c) of the Small Business Act), if the organization or business concern employs not more than 500 employees (or the greater size standard established by the SBA for the industry in which the applicant operates, if applicable).
  • Business concerns in the Accommodations and Food Services industries (as determined by NAICS code) that have more than one physical location but do not employ more than 500 employees per physical location.

In addition, the CARES Act waives affiliation rules through June 30, 2020 for businesses in the Accommodations and Food Services industries, SBA-approved franchises, and small businesses receiving financial assistance under the Small Business Investment Act in determining borrower eligibility.


The loan must be required to support the ongoing operations of the borrower due to the uncertainty of the current economic conditions.

The loan proceeds must be used to retain workers and maintain payroll or make mortgage, lease, and utility payments.

The borrower cannot have a loan application pending, or have received between February 15, 2020 and December 31, 2020 any amounts, for the same purpose and in duplication of amounts applied for or received under the program.

Borrowers are required to certify in good faith to the above.

How Loan Funds Can be Used

Loan funds may be used for payroll, costs for continuing group health care benefits during periods of paid sick, medical, or family leave and costs of insurance premiums, employee salaries and commissions, mortgage interest payments (but not prepayments or payments of principal), rent, utilities, and interest on prior debt obligations.

Application Materials

Applicants must complete and submit SBA Form 2483 (Paycheck Protection Program Application Form), which includes the certifications described above, and payroll eligibility documentary (such as payroll processor records, payroll tax filings, or Form 1099 MISC, or expenses from a sole proprietorship) as specified by your lender. You can find the form on the SBA website here.

We expect that further guidance from the SBA will be forthcoming. In addition, the CARES Act also addresses various other forms of financial relief outside of the Small Business Administration 7(a) loan program. Please check back at for additional updates and resources, or contact us here if you would like to learn more about how we can help you and your business navigate the intricacies of the CARES Act. Click here to subscribe to our newsletter.

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Linden Law Partners

Linden Law Partners is a boutique law firm that represents clients throughout their business life cycles, from formation to exit. We are business and transactional law specialists with extensive experience in all aspects of corporate law and governance, partnerships, joint ventures, emerging companies, private equity and venture capital, private and public securities offerings, and mergers and acquisitions. We offer clients big firm experience at a better price.

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