The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocated $350 billion to help businesses keep workers employed during the pandemic and recovery.  Most important to small businesses:

  • $10 billion has been set aside for emergency loans to help small businesses keep workers employed, including some that are forgivable;
  • $17 billion for loan subsidies through the SBA;
  • and $350 billion in loan guarantees.

Part of CARES includes the Paycheck Protection Program, which provides loans to small businesses.  Importantly—these loans may be forgiven if borrowers maintain their payroll during the crisis or restore payrolls afterwards.

IS YOUR SMALL BUSINESS ELIGIBLE?

You are eligible if you are:

  • A small business with fewer than 500 employees
  • A small business that otherwise meets the SBA’s size standard
  • A 501(c)(3) with fewer than 500 employees
  • An individual who operates as a sole proprietor
  • An individual who operates an independent contractor
  • An individual who is self-employed who regularly carries on any trade or business
  • A tribal business concern that meets the SBA size standard
  • A 501(c)(19) Veteran’s Organization that meets the SBA size standard

Additional rules that could make you eligible:

  • If you are a in the accommodation and food services sector (NAICS 72), the 500-employee rule is applied on a per physical location basis
  • If you are operating as a franchise or receive financial assistance from an approved Small Business Investment Company the normal affiliation rules do not apply.

WHAT ARE LENDERS LOOKING FOR?

First, lenders are looking at whether the borrower was operating before February 15, 2020 and had employees for whom they paid salaries and payroll taxes or paid independent contractors.

Additionally, lenders will look for good faith certification that:

  • The uncertainty of current economic conditions makes the loan request necessary to support ongoing operations
  • The borrower will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments
  • The borrower does not have an application pending for a loan duplicative of the purpose and amounts applied for under CARES
  • From February 15, 2020 to December 31, 2020, the borrower has not received a loan duplicative of the purpose and amounts applied for here.
    • NOTE: there is an opportunity to fold emergency loans made between January 31, 2020 and the date this loan program becomes available into a new loan.

If you an independent contractor, sole proprietor, or self-employed individual, lenders will also be looking for certain documents such as payroll tax filings, 1099s, and income and expenses from the sole proprietorship.

HOW MUCH CAN YOU BORROW?

  • Loans can be up to 2.5 x the borrowers average monthly payroll costs, not to exceed $10 million.

HOW DO YOU CALCULATE AVERAGE MONTHLY PAYROLL COSTS?

  • For sole proprietors, independent contractors, and self-employed individuals: your payroll costs are the sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 n one year, as pro-rated for the covered period.
  • For Employers: the payroll costs are the sum of payments of any compensation with respect to employees that is a:
  • Salary, wage, commission, or similar compensation
  • Payment of cash tips
  • Payment for vacation, parental, family, medical or sick leave
  • Allowance for dismissal or separation
  • Payment required for the provisions of group health care benefits
  • Payment of retirement benefits
  • Payment of state or local taxes assessed on the compensation of the employee
  • EXCLUDED Payroll cost:
    • Compensation of an individual employee in excess of an annual salary of $100,000
    • Payroll taxes, railroad retirement taxes, and income taxes
    • Compensation of an employee whose principal place of business is outside the US
    • Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Ace or qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act.

WILL THIS LOAN BE FORGIVEN THROUGH THE PAYCHECK PROTECTION PROGRAM (PPP)?

Borrowers are eligible to have their loan forgiven equal to the amount the borrower spent on the following items during the 8-weeks period beginning on the date of the loan:

  • Payroll costs
  • Eligible payroll costs do not include compensation above $100,000 in wages
  • Interest on the mortgage obligation incurred in the ordinary course of business
  • Rent on a leasing agreement
  • Payments on utilities

In other words, if employers maintain their payroll, a portion of the loan would be forgiven.

HOW FORGIVENESS COULD BE REDUCED

The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year and reduced by the reduction in pay of any employees beyond 25% of their prior year compensation.

The amount of loan forgiveness calculated above is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees.  For a more detailed account of how this is calculated go to: https://www.uschamber.com/sites/default/files/023595_comm_corona_virus_smallbiz_loan_final.pdf

FORGIVENESS MAY NOT BE REDUCED IF YOU RE-HIRE

However, to encourage employers to rehire any employees who have been laid of due to COVID-19, borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.

Reductions in employment or wages that occur during the period beginning on February 15, 2020, and ending 30 days after the enactment of the CARES Act shall not reduce the amount of loan forgiveness IF by June 30, 2020 the borrower eliminated the reduction in employees or reduction in wages.