Updated: May 21, 2020
Last week, Congress passed the Coronavirus Aid, Relief and Economic Security Act, also called the “CARES Act,” which includes $349 billion designed to keep small businesses afloat.
The Paycheck Protection Program, part of the CARES Act, is of particular interest for small businesses.
What is the “Paycheck Protection Program” and who does it help?
·Small businesses, sole proprietorships and even self-employed individuals can apply for loans with an interest rate of 4% or less, the principal of which may be forgiven in certain instances. However, if a business reduces employees or certain employee salaries (within certain thresholds), the amount forgiven may be reduced.
A business must certify that the current economic conditions make the loan necessary to support ongoing operations and that the funds will be used to retain workers and maintain payroll, or make mortgage payments, lease payments, and utility payments.
No personal guarantee or collateral is required.
Loans are available to business with under 500 employees, or which otherwise meet the definition of “small business concern”. That definition varies by industry. Further, hotels, restaurants and other hospitality businesses can also quality even if they have over 500 employees, provided each physical location has less than 500 employees.
Even if the business closed or laid off staff during the crisis, a loan may still be applied for.
The loan maxes out at the lesser of $10,000,000 or 2.5 times average monthly payroll.
What can businesses use the money for?
Payroll costs, costs of benefits, interest on mortgage payments, rent, utilities, and interest on debt obligations incurred before February 15, 2020.
Why apply for the loan?
·The principal of the loan will be forgiven, up to an amount equal to the certain costs and payments made during the “covered period,” which is defined to mean the eight-week period starting on the date of origination of the loan.
For any amount which is not forgiven, the loan has a max term of 10 years from the date a business applies for forgiveness, and the banks may set an interest rate of up to 4%.
How do I apply?
The application process is not yet established, but will be forthcoming in guidance/regulations from the Small Business Administration. A very streamlined process (compared to the current SBA loan process) is expected, as banks themselves have been delegated the authority to determine eligibility.
The CARES Act also includes relief for individuals. The bill provides direct payments of $1,200 to individuals, $2,400 for married couples, with additional $500 payments per qualifying child. The rebate begins phasing out when incomes exceed $75,000 (or $150,000 for joint filers) and is capped at $99,000 for individuals.
Contact us today to find out how the CARES Act can assist your business continuity planning in the coming weeks.
Thank you to Janene Marasciullo for her assistance in preparing this blog post.