Small Business Guide to Coronavirus Emergency Loans:
All You Need to Know about the
Paycheck Protection Program
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted into law on March 27, 2020. Its intent is to be another source of needed stimulus to individuals, businesses, non-profits, in response to the economic distress caused by the COVID-19 pandemic.
One innovative program that is worthy of attention to small businesses as defined by the CARES Act is the Paycheck Protection Program (hereinafter referred to as “PPP”). The Small Business Administration (“SBA”) is the executive agency tasked to implement it through its authorized lending partners who should take up the volume of rolling it out.
You should consult and navigate through this, and other programs, with your financial advisors and CPA, before reaching a conclusion.
We are going summarize the key provisions of this program.
The PPP provides 100% federally guaranteed loans to small businesses (including NGO’s /non-profits).
These businesses had to be operating on February 15, 2020 and have had less than 500 paid employees for whom it paid payroll taxes or had independent contractors. That is, it includes sole proprietorships or self-employed, and independent contractors.
The covered period is from February 15, 2020 through June 30, 2020.
The interest rate on these PPP loans may not to exceed 4%.
The amount that can be borrowed can be up to 2.5 x the borrower’s average monthly payroll costs, not to exceed $10 million.
It doesn’t require normal collateral or personal guarantee requirements.
The average monthly PAYROLL COSTS for the maximum loan amount is the Sum of INCLUDED payroll costs – sum of EXCLUDED payroll costs. = PAYROLL COSTS
The INCLUDED Payroll Cost:
For Employers: The sum of payments of any compensation with respect to employees including:
salary, wages, commissions, or similar compensation; cash tips or equivalent; leave of absence (vacation, sick, or others), dismissal or separation, group health care benefits, insurance premiums, any retirement benefit, and payroll taxes assessed on the compensation of the employee.
For Sole Proprietors, Independent Contractors, and Self-Employed Individuals:
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 in one year, as pro-rated for the covered period.
EXCLUDED Payroll Cost:
1. Compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the period February 15, to June 30, 2020
2. Payroll taxes, railroad retirement taxes, and income taxes
3. Any compensation of an employee whose principal place of residence is outside of the United States
4. Paid sick leave or paid family leave for which a tax credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.
Borrowers are eligible to have their loans forgiven equal to the amount the borrower spent during the 8-week period beginning on the date of the origination of the loan on:
1. Compensation or Payroll costs;
2. Interest on the mortgage, business Rent, or leases; and
3. Payments on utilities (electricity, gas, water, transportation, telephone, or internet)
The loan forgiveness cannot exceed the principal taken.
The forgiveness would be reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees.
What if you bring back employees or restore wages? Reductions in employment or wages that occur during the period beginning on February 15, 2020, and ending 30 days after enactment of the CARES Act, (as compared to February 15, 2020) shall not reduce the amount of loan forgiveness if by June 30, 2020 the borrower eliminates the reduction in employees or reduction in wages.
We hope this information helps you understand this loan program available for small businesses and entrepreneurs, and that you can reinvent yourselves and how you do business, through these times. We trust you will be able to come up with different strategies and ideas and come back despite this COVID-19 situation.
If you have any questions or wish additional information regarding this matter, please contact any of the attorneys of NOLLA, PALOU & CASELLAS, LLC.
This communication is for informational purposes only. It is not intended as, and does not constitute, either, legal advice or solicitation, of any prospective client.
This communication is intended, merely, as another tool to keep the business community, our clients and friends informed as to breaking legal developments.
An attorney-client relationship with NOLLA, PALOU & CASELLAS, LLC cannot be established by reading or responding to this information; such a relationship may be formed only by a specific and explicit agreement with NOLLA, PALOU & CASELLAS, LLC
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