CARES Act – paycheck protection program

The CARES Act establishes a new loan program through the Small Business Association (SBA), to aide small businesses who have had to lay off employees, and or, suspend their operations. To be eligible for a loan under this section an entity must have less than 500 employees, which includes full time and part-time workers.

Eligible businesses include:

• Sole proprietors, and certain self-employed individuals
• Independent contractors
• Nonprofit organizations under section 501(c)(3)
• food service industry businesses with less than 500 employees per physical location

Loans will be administered by SBA-approved lenders, and are limited to the lesser of:

• 2.5 times the average total monthly payroll costs incurred during the 1-year period before the date on which the loan is made. Seasonal employers, and employers not in business between February 15, 2019 and July 30, 2019, will use an alternative calculation period.
• $10,000,000.

Payroll costs for determining the eligible loan amount include:

• Salaries, wages, commissions
• Payment of cash tips
• Payment for vacation, parental, family, medical, or sick leave
• Payment required for group health care benefits, including insurance premiums
• Payment of any retirement benefit
• Payment of State or local tax assessed on employee compensation

Payroll costs do not include annual compensation in excess of $100,000 per person, or compensation of an employee whose principal residence is outside of the United States. They also do not include Federal employment taxes imposed or withheld. Qualified family or sick leave wages for which a credit is allowed under the Families First Coronavirus Response Act, will also not count as payroll costs.

Proceeds from a loan under this program may only be used for the following purposes:

• Payroll costs
• Costs related to continuation of group health care benefits and insurance premiums
• Employee salary/compensation
• Rent and utilities
• Interest on other debt incurred before February 15, 2020

Loans taken under this program are eligible for full or partial forgiveness. The forgiven amount will be equal to the amount actually paid for payroll costs (not including salary amounts over $100K), benefits, rent, utilities and mortgage interest during the eight weeks following disbursement of the loan. Additionally, amounts forgiven will not be included in gross income as cancelation of indebtedness income.

The amount forgiven will decrease ratably if the employer does not retain an equivalent number of employees between February 15, 2020 and June 30, 2020, as it employed between either February 15, 2019 and June 30, 2019, or January 1, 2020 and February 15, 2020. Further reductions to the forgiveness amount will be incurred if the employer cuts an employee’s compensation by more than 25% (for employees making less than $100K), as compared to the previous quarter.

Any amounts not forgiven will have a maximum maturity of 10 years from the date the borrower applies for loan forgiveness, and maximum interest rate of 4%. Payments on these loans will be deferred for 6 to 12 months.