Howard, LLP

CARES Act: Paycheck Protection Program

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On March 27, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act).  Here is a brief summary of one of the provisions, Paycheck Protection Program.

These loans are administered through the Small Business Administration (SBA) through June 30, 2020.  The loans may be forgiven if borrowers maintain their payroll during the crisis or restore their payrolls afterward.  Lenders will request for certain good faith certifications surrounding application data.  Lenders may begin processing applications on Friday, April 3, 2020.  Here is the link for a sample application form: https://www.sba.gov/document/sba-form–paycheck-protection-program-ppp-sample-application-form.

Eligibility: Generally, businesses (including nonprofits) qualify if they have 500 or fewer employees.  If they have more than 500 employees, the business would need to qualify under SBA Size Standards found at https://www.sba.gov/size-standards, based on the business’s industry.  The 500-employee threshold includes all employees: full-time, part-time, and other status.

Loan Terms:

  • Maximum loan amount is 2.5 times the business’s average monthly payroll costs incurred during the year prior to the loan date, not to exceed $10 million. If the business was not in existence in 2019, the maximum loan amount is 2.5 times its average monthly payroll costs during January and February 2020.
  • Generally, the loans will be non-recourse.
  • No personal guarantee or collateral is required.
  • No prepayment penalty.
  • The SBA will not charge a fee on the loan during the covered period.

Loan Forgiveness:

  • The amount to be forgiven is equal to the sum of the amounts spent on the following items during the 8-week period beginning on the date of the loan:
    • Payroll costs: This includes salaries, wages, and commissions; payment of cash tip or equivalent; payment of vacation, parental, family, medical, or sick leave; allowance for dismissal or separation; payments for group health plans and retirement benefits; payment of state or local tax assessed on the employee’s compensation. It does not include any compensation in excess of an annual salary of $100,000, as prorated for the period February 15 to June 30, 2020; payroll taxes, railroad retirement taxes, and income taxes; any compensation to employee whose principal residence is outside of the United States; and any compensation for qualified sick leave or qualified family leave wages under the Families First Coronavirus Response Act.
    • Interest on mortgage obligation incurred in the ordinary course of business (and incurred before February 15, 2020).
    • Rent on a leasing agreement in effect before February 15, 2020.
    • Payments on utilities.
  • The amount of the loan forgiveness will be reduced if there is a reduction in the number of employees during the 8-week period beginning on the date of the loan, or reduction of salaries of covered employees by more than 25%.

Documentation:  An application, including documentation verifying payroll and expenses is required.

For further information:

More to come

The CARES Act includes several tax-related provisions to help individuals and businesses survive the coronavirus (COVID-19) pandemic. We’ll keep you informed of new developments that could affect your bottom line and help you navigate the best financial course forward during these uncertain times.