04.01.2020

Paycheck Protection Program (CARES) Act

Coronavirus

On Friday March 27th, 2020 the President signed into law the Coronavirus Aid, Relief and Economic Security (“CARES”) Act which provides Americans with various economic resources during these challenging times. One of the main objectives of the Act is to keep Americans paid and employed. The Payroll Protection Program (“PPP”) allocates $349 billion to support small business loans that are 100% backed by the Small Business Administration (“SBA”). The CARES Act waives many of the strict SBA rules to allow eligible small businesses the opportunity for some economic relief.

Where to Apply

  • Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders (contact your current lender to see if they are SBA approved).
  • Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders (contact your current lender to see if they are SBA approved).
  • Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program. Visit www.sba.gov for a list SBA lenders.
  • The Department of Treasury has released the Paycheck Protection Program application and borrower information sheet.

Eligibility

  • Small Business, Non-Profit, Veterans Organization and Tribal businesses with less than 500 employees. Sole Proprietors, Independent Contractors and eligible Self-Employed Individuals
  • Operational on February 15th, 2020, and
  • Had employees for whom the borrower paid salaries and payroll taxes, or
  • Paid independent contractors, as reported on a Form 1099-MISC.

Covered Period

  • February 15th, 2020 – December 31st, 2020

Loan Amount

  • The maximum loan amount is the lesser of $10 million or 2.5 times the average total monthly payroll costs during the one-year period prior to the date of the loan. Slightly different calculations are available for seasonal employers.

Allowable Uses

  • Payroll Costs
    • Includes
      • Salaries, wages, commission or similar compensation
      • Payment of cash tip or equivalent
      • Vacation, parental, family, medical or sick leave
      • Allowance for dismissal or separation
      • Payments for group health care benefits, including premiums
      • Payment of any retirement benefits
    • Excludes
      • Compensation in excess of $100,000
      • Payroll Taxes (i.e. Social Security & Medicare)
      • Compensation to employees outside of US
      • Qualified sick leave wages for which a credit is allowed under the Families First Coronavirus Response Act
      • Qualified family leave wages for which a credit is allowed under the Families First Coronavirus Response Act
    • Costs related to the continuation of Group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
    • Payments of interest on any mortgage obligation
    • Rent
    • Utilities, and
    • Interest on any other debt obligations that were incurred before the covered period.

Borrower Requirements

  • An eligible recipient applying for a loan shall make a good faith certification
    • that the uncertainty of current economic conditions makes the loan request necessary to support the ongoing operations of the eligible recipient;
    • acknowledging that funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments and utilities payments;
    • that the eligible recipient does not have an application pending for a loan under this section for the same purpose and duplicative of amounts applied for or received under a covered loan; and
    • during the period beginning on February 15th, 2020 and ending on December 31, 2020 the eligible recipient has not received amounts under this subsection for the same purpose and duplicative of amounts applied for or received under a covered loan.

Other Key Components

  • SBA loan fees will be waived.
  • No personal guarantees and collateral will not be required.
  • Maximum maturity of 10 years for principal balance not forgiven.
  • Interest rate not to exceed 4 percent.
  • Require lenders to defer payments for a period of six months up to one year.
  • Waiver of prepayment penalty.
  • Eligible for loan forgiveness (See below)

Loan Forgiveness

  • Loans received under the Paycheck Protection Program are eligible for forgiveness equal to the sum of the costs (see below) during the eight-week period beginning on the origination of the loan
    • Payroll Costs (As described above)
    • Interest Payments on mortgage loans incurred prior to February 15th, 2020.
    • Rent obligations for leases enforced prior to February 15th, 2020.
    • Utility payments for services that began prior to February 15th, 2020.
  • The amount of loan forgiveness shall not exceed the principal amount of the loan and can be reduced by
    • multiplying the quotient of the average number of full-time equivalent (FTEs) employees employed during the eight-week period beginning on the date of the origination of the loan by average number of FTEs employed during the period beginning February 15th, 2019 and ending June 30th, 2019, or
    • the average number of FTEs employed during the period beginning Jan. 1, 2020 and ending Feb. 29, 2020.
    • For seasonal employers, the period described in the first bullet point above will be the period beginning February 15th, 2019 and ending June 30th, 2019.
  • The amount of loan forgiveness will also be reduced by the amount of any reduction in total salary or wages of any employee during the covered period that is in excess of 25% of the total salary or wages of the employee during the most recent full quarter before the eight-week covered period. This includes any employee who did not receive, during any single pay period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000.
  • To encourage businesses to rehire employees or restore wages, the amount of loan forgiveness will be determined without regard to reductions in the number of employees or reductions in wages that occurred during the period beginning Feb. 15, 2020, and ending on the date that is 30 days after the date of the enactment of the CARES Act, if the business eliminates the reduction no later than June 30, 2020.
  • An eligible business seeking loan forgiveness under the Paycheck Protection Program must submit an application to their lender that is servicing the loan which shall include:
    • Documentation verifying the number of FTEs on payroll and pay rates for the period beginning Feb. 15, 2020, and ending June 30, 2020, including payroll tax filings reported to the IRS and state income, payroll and unemployment insurance filings;
    • Documentation verifying payments on mortgage obligations, lease payments and utility payments;
    • A certification that the amount for which forgiveness is requested was used to retain employees, make mortgage interest payments, make lease payments or make utility payments; and
    • Any other documentation SBA determines necessary.
  • A decision is required within 60 days after the date on which the lender receives the application for loan forgiveness.

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