Paycheck Protection Program – CARES Act

The White House has announced applications for the Paycheck Protection Program will be available through your SBA preferred lender Friday, April 3, for small businesses and sole proprietorships and on Friday, April 10, for independent contractors and self-employed individuals.

The Paycheck Protection Program will allow small businesses to be entitled to a loan that is eligible for forgiveness if the business uses the loan for payroll costs (including retirement benefits and health insurance costs), mortgage payments, lease payments, utilities or other debt that was originated prior to February 15, 2020.

Paycheck Protection Program Sample Application Form

Currently, there are eight (8) key subjects to understand when applying for the Paycheck Protection Program

1. Eligibility:
   • Any business that employs 500 or fewer employees is eligible for the Program (section 1102(a) page. 3).
   • An employee is defined as any individual employed on a full-time, part-time, or other basis (section 1102(a) page. 4).
2. Loan:
   • Businesses may borrow up to 250% of the business’ average monthly payroll cost for a 1-year period immediately prior to the date of the loan, up to a maximum loan amount of $10 million (section 1102(a) page 4-5).
   • Payroll costs include salary, wages, and commissions for employees who are paid at an annual rate of not more than $100,000, plus the costs of vacation and various types of leave, group health care benefits, insurance premiums, retirement benefits, allowance for dismissal or separation, and state and local taxes assessed on the compensation of the employees (section 1102(a) page. 2).
   • The amount also includes net earnings from self-employment which is not more than $100,000 per year (section 1102(a) page. 2).
   • Payroll costs exclude IRS taxes paid or payable on earnings (section 1102(a) page. 2).
   • Tax credits for sick leave and family leave allowed under the Families First Act are excluded from amounts that can be borrowed (section 1102(a) page. 2).
   • Personal guarantee is not required, nor is any collateral. The interest rate shall not exceed 4%. No loan processing fee will be collected (section 1102(a) page. 6)
3. Purpose of the Loan
   • The loan can be used in the following categories: expenses, payroll costs, group health benefits, sick leave or family leave, insurance premiums, interest on any mortgage obligation (excluding principal), rent, utilities, interest on debt obligation incurred before the covered period (section 1102(a) page. 5)
4. Certification to receive the Loan
   • Validate that the uncertainty of the current economic conditions makes the loan necessary to support ongoing operation, that the funds will be used to retain employees and make payroll, pay mortgage payments, lease payments, and utility payments, and that there is only one loan application for these guns that will be made (section 1102(a) page. 6)
   • View our Payroll Protection Act Checklist
5. Loan Forgiveness
   • Indebtedness is forgiven (and excluded from gross income) in an amount (not to exceed the principal amount of the loan) equal to the following costs incurred and payments made during the covered period (section 1106(b) pages. 10-11)
     • Payroll Costs
     • Interested Payments on Mortgages
     • Lease Payments
     • Utility Payments
   • Forgiveness is not automatic, the lender must receive a loan forgiveness application for the borrower, and the lender must decide how to forgive within 60 days of the application (section 1106(g) page. 14).
   • Remaining balance due on the plan after spatial loan forgiveness, the balance shall have a maximum maturity of 10 years from the date on which the borrower applies (section 1102(a) page. 6).
6. Loan Forgiveness Reduction
   • A loan forgiveness amount can be reduced if the employer fails to maintain the level of employees compared to the prior year, or if there is a reduction in pay to any employee in excess of 25% of the employee’s most green full quarter compensation (section 1106(d) page. 12)
   • If the number of FTEs is less during the covered period than it was previously, your loan forgiveness will be reduced by that percentage (section 1106(d) page. 12)
7. Treatment for Amount Forgiven
   • The amount forgiven “shall be considered canceled indebtedness” under the SBA (section 1106(c) page. 11).
8. Regulations
   • No later than 30 days after the date of the enactment of the Program, the SBA Administrator shall issue guidance and regulation implementing this section (section 1106(k) page. 14). Creating further guidance once the regulation is promulgated.

Interim Final Rule – Paycheck Protection Program

Sources: SBA Government

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