On March 27, the House of Representatives passed the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. This legislation included many provisions intended to improve cash flow for taxpayers impacted by the COVID-19 pandemic. One such provision is the Small Business Administration (SBA) Paycheck Protection Program. This information is current as of 4/6/2020 and is subject to change by the SBA.

Key Provisions Include:

  • The Paycheck Protection Program (“PPP”) authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. All loan terms will be the same for all eligible businesses.

Eligibility – The following organizations (“Small Businesses”) are eligible for a PPP Loan:

  • Businesses with 500 or fewer employees (can be greater than 500 if SBA guidelines permit)
    • All employees count towards this regardless of hours worked
  • A business that meets the SBA’s size standard (certain industries may have a higher cap on the number of employees in order to qualify as a small business)
  • Section 501(c)(3) qualifying nonprofit organizations
  • Self-employed individuals
  • Sole proprietorships
  • Independent contractors

The CARE Act waives the SBA affiliation requirement for the following applicants:

  • Accommodation and Food Services sector businesses with no more than 500 employees;
  • Franchises with codes assigned by the SBA as reflected on the SBA franchise registry; and
  • Businesses that receive financial assistance from one or more small business investment companies (SBIC).

Loan Application Process:

  • No fees, collateral or guarantees
  • Apply through any bank that handles SBA loans – We strongly suggest using the Company’s existing bank
  • Certain representations are made (economic hardship, use of proceeds for payroll, rent, debt, utilities)
  • Likely need to provide 12 months of payroll, debt, rent and utilities expenses
  • Can apply between 2/15/20 and 6/30/20
    • Small businesses and sole proprietorships may apply starting 4/3/20; independent contractors and self-employed individuals may apply starting 4/10/20
  • Complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender that is available to process your application by June 30, 2020.

Loan Amount:

  • 2.5x average monthly payroll costs for prior 12 months not to exceed $10,000,000
  • Payroll costs include:
    • Payroll to employees, including owners
    • Includes vacation, PTO and severance
    • Employer expenses for health and retirement plans
    • Employer payments for State and Local taxes assessed on compensation (e.g. SUTA)
  • Payroll costs exclude:
    • Payments made to an independent contractor or sole proprietor, regardless of whether those payments are reported on Form 1099-MISC
    • Employer-paid FICA (Social Security and Medicare) or FUTA (unemployment)
  • Limit of $100,000 rate per employee, applied to payroll before benefits
  • Payroll costs for owners of Schedule C’s is the resulting self-employment income

Loan Forgiveness:

  • The loan amounts will be forgiven to the extent of payments for allowable use made in the 8-week period after the loan is granted:
    • The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8-week period after the loan is made (75% of allowable use to be for payroll costs);
    • Employee and compensation levels are maintained.
      • If these items are not met, the amount of loan forgiveness is reduced
  • Loan payments will be deferred for 6 months, interest accrues during this period
  • Loan forgiveness is not taxable
  • No interest on 8-week period if loan is fully forgiven
  • If not forgiven, you may pay the loan back immediately or pay it back by the maturity date (2 years from issuance) at no more than 1.0% interest with an initial deferral of principal and interest of 6 months

Additional Resources:

SBA Business Loan Program Temporary Changes; Paycheck Protection Program Please Click Here

SBA Lenders list available at: SBA Website

Eligible applicants: Size Standards

Loan application: Please click here

Please contact us with questions regarding how this credit can benefit your business.