CARES Act
Paycheck Protection Program
FAST FACTS:
The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) allocated $350 billion to help small businesses during the COVID-19 pandemic. The Paycheck Protection Program provides loans to small businesses who are experiencing economic hardship as a result of the pandemic.
April 3rd: small businesses and sole proprietorships can apply.
April 10th: independent contractors and self-employed individuals can apply.
Loans can be up to 2.5x the borrower’s average monthly payroll costs and cannot exceed $10 million.
Loans can be forgiven if certain criteria are met.
FILE ASAP! There is a funding cap.
Access the application form here: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Application-3-30-2020-v3.pdf
THE NITTY GRITTY:
Under Section 1102 of the CARES Act, The Paycheck Protection Program is available to a range of small business owners, including individuals and entities, who are experiencing economic hardship as a result of the COVID-19 pandemic. The program is implemented by the Small Business Administration with support from the Department of the Treasury. The purpose of the program is to help businesses keep employees and to meet their existing payroll obligations. Under this program, an employer must certify that, as a result of the uncertainty of the current economic conditions, it is necessary to request a loan to support the ongoing operations to keep their employees employed.
1. How does an employer qualify for a paycheck protection loan?
To qualify for a loan, a business must:
Be a partnership, corporation, 501(c)(3) corporation, sole proprietor, independent contractor, 501(c)(19) Veterans Organization, a Tribal business concern, or self-employed individual;
Have been in operation before February 15, 2020;
Have employees with whom the business payed salaries and payroll taxes or paid independent contractors;
Employed fewer than 500 employees OR otherwise meets the SBA’s size standard; and
A good faith certification that:
1) under the current economic conditions the loan is necessary to support ongoing operations;
2) the borrower will use the loan to retain workers, maintain payroll, or make mortgage, lease, and utility payments;
3) the borrower does not have a loan pending for a duplicative purpose; and
4) the borrower has not received a loan for a duplicative purpose from February 15, 2020 onward.
www.sba.gov; See also Sec. 1102(a)(2)(D) of CARES Act.
These loans are available through any lending institution that is approved to participate in the program under the existing SBA 7(a) lending program as well as additional lenders approved by the Department of Treasury. Applications are conducted through the individual banks and Treasury. These loans are available to all employers who have not received a prior loan for the purposes of meeting their payrolls. If a business already received a loan to meet payroll, the business is not eligible for this loan program. [MOU2] If you have a law firm that employs more than 500 employees you probably do not qualify for this loan as law firms are not included in any of the exceptions provided under the Cares Act.[MOU3]
See Sec. 1102(a)(2)(G)(i) of Care Act
2. How much can you borrow?
The CARES Act is intended to cover 8 weeks’ worth of payroll costs from February 15, 2020 to June 30, 2020. The maximum amount borrowed may be 2.5 times the employer’s average monthly payroll costs in 2019 or $10,000,000 whichever is less.
Payroll Costs = sum of included payroll costs MINUS sum of excluded payroll costs.
3. What is considered payroll costs for the purposes of this loan?
Salary, wage, commission and similar compensation;
Payment of cash tip or equivalent;
Payment of vacation, parental, family, medical and sick leave;
Allowance for dismissal or separation;
Payment required for provisions of group health care benefits including insurance programs;
Payment of any retirement benefit;
Payment of state and local tax assessment on the compensation of employees; and
The sum of payments and compensation for any sole proprietor or independent contractor that has wage, commission, income, net earnings from self -employment or similar compensation that is in an amount that is not more than $100,000 per year as prorated for the coverage period. The payroll costs do not include compensation for individuals in excess of an annual salary of $100,000 as prorated for the covered period.
See Sec.1102(a)(2)(A)(viii) of Cares Act
4. What is not considered payroll costs covered:
Taxes imposed or withheld under chapters 21, 22 or 24 of the Internal Revenue Code;
Any compensation of an employee whose principal place of residence is outside the United States;
Qualified sick leave wages which is allowable under the Families First Coronavirus Response Act; and
Any qualified family leave wages for which credit is allowed under Section 703 of the Families First Coronavirus Response Act
See Sec.1102 (a)(2)(E)(i)(I)(aa)(AA) of Cares Act
5. What can these loans be used for?
These loans can be used to pay for payroll costs, payment of interest on any mortgage obligations, payment of interest on any debt obligations, rent and utilities. These obligations must have been in force prior to February 15. 2020; and
Funds used for allowable purposes will be eligible for forgiveness once documentation of expenses has been provided to the lender. For payments of existing debts allowed under this program, only interest portions of these payments will be eligible for forgiveness.
6. How do you seek forgiveness of the loan?
The loan is 100% forgivable;
Borrowers may seek forgiveness of the loan after those proceeds have been spent on one allowable purpose;
Only the amount spent on allowable purposes during the 8 period week are forgiven;
The amount of proceeds eligible for forgiveness will decrease if an average number of people employed by the business per month decreases after accepting the loan or wages of the employees are reduced by more than 25% even if the proceeds were used for an allowable purpose; and
The loan forgiveness will be subject to verification and proper documentation.
See Sec. 1106(e) of Cares Act
7. Can you take out a different loan?
An employer may take out additional loans even if they accept this loan, however, you may not take out another loan for the same purpose.
8. When can you start to apply for the loan?
ASAP.!
There is a funding cap on the program and although the program is open until June 30, 2020, it is advisable to apply as soon as your collect your documentation.
Specifically, small businesses and sole proprietors can apply on April 3, 2020. Independent contractors and self-employed individuals can apply on April 10, 2020.
Sources:
https://www.uschamber.com/sites/default/files/023595_comm_corona_virus_smallbiz_loan_final.pdf
https://www.uschamber.com/report/covid-19-emergency-loans-small-business-guide
Sources:
https://www.uschamber.com/sites/default/files/023595_comm_corona_virus_smallbiz_loan_final.pdf
https://www.uschamber.com/report/covid-19-emergency-loans-small-business-guide