On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act contains many provisions for businesses and individuals, but the most impactful provision for small businesses in the immediate term is the Paycheck Protection Program loan.
The Paycheck Protection Program loan will provide up to $349 billion of federally guaranteed loans for small businesses. The loans are being issued by qualified SBA lenders (banks) and will be available until June 30, 2020, or until funds run out.
Businesses with 500 or fewer employees, which were operational on February 15, 2020, are generally eligible for 2½ times the business’s average monthly payroll over either the prior 12 months or for 2019 (up to a maximum loan of $10 million). Some of the loans may be forgiven, and for the remaining debt, the interest rate will only be 1%.
The Paycheck Protection Program loans can be used for the following expenses:
- Payroll costs (up to $100,000 per employee);
- Group health coverage;
- Business occupancy costs (mortgage interest, rent, and utilities); and
- Interest on other business loan obligations.
The loans may be forgiven for amounts used for these expenses for up to eight weeks from the loan origination date. However, loan forgiveness will be reduced by reductions in employee compensation, or layoffs of employees during the period of February 15, 2020, through June 30, 2020.
Any loan amount that isn’t forgiven has a term of 2 years, and an interest rate of 1%. No payments will be required for the first six months, though interest will continue to accrue during that time.
We suggest that you reach out to your existing banking institution to determine whether they are a participating lender. If your existing bank does not participate in Paycheck Protection Program loans check the SBA Lender search.
We also suggest that you begin gathering the following documentation that we expect will be required for the application process:
- Payroll records, including copies of payroll tax returns and W-2s going back to the first quarter of 2019 — including documentation of full-time versus part-time employees;
- Documentation of qualifying expenses (rent/lease contracts, mortgage statements, utility bills, loan documents for other loan obligations, and group health insurance information);
- Three years of business tax returns; and
- 2019 year-end income statement and balance sheet.
As a final note, businesses receiving Paycheck Protection Program loans are ineligible for the Employee Retention Credit, which is a new credit available to small businesses under the CARES Act. We would be happy to consult with you to compare Paycheck Protection Program loans and the Employee Retention Credit.