On Friday evening, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion stimulus package aimed to help individuals, businesses and public institutions who have been affected by the COVID-19 pandemic.
Among its many provisions, the CARES Act relaxes restrictions and expands eligibility of the U.S. Small Business Administration (SBA) Section 7(a) Loan Program. The Act includes the Paycheck Protection Program (PPP) to permit individuals, small businesses and nonprofits to obtain loans through the 7(a) Loan Program (PPP Loans).
The CARES Act increases the 7(a) Program’s lending power from $30 billion for fiscal year 2020 to $349 billion from February 15 through June 30. This $349 billion allows the SBA to fully guarantee loans under the new program, as opposed to a 75% or 85% guarantee for standard 7(a) loans. In certain circumstances, the PPP loan may even be forgiven.
PPP Loan Eligibility
PPP Loans are available through June 30, 2020 for any business, nonprofit, Tribal business, or veterans organizations with 500 or fewer employees. Large food and lodging service chains are also eligible for the loan as long as each physical location has 500 or fewer employees. Eligibility is also extended to independent contractors, sole proprietors and eligible self-employed workers, as well as companies operating within an industry-applicable size standard (determined by the SBA).
Generally, eligible participants can borrow 250% of their average monthly payroll costs (incurred in the one-year period predating the loan) or $10 million, whichever is less. Interest rates for these loans are capped at 4% through June 30, 2020. No personal guarantee or collateral is required for CARES, and individual employee’s annual salaries cannot exceed $100,000 to be considered “payroll costs.”
Eligible recipients are limited to one loan and may use it for the following expenses:
· Salaries or commissions (or similar compensation)
· Payroll costs
· Continuation of group health care benefits
· Interest or mortgage obligations
· Other outstanding debt
Incredibly, the PPP Loan principal can be forgiven in certain circumstances. The amount eligible is excluded from taxable income and equal to the following expenses paid within the covered period:
· Mortgage interest
· Payroll costs
The amount of forgiveness depends on whether the recipient maintains its average full-time workforce size. If the recipient decreases the size of their workforce below certain amounts or reduces an employee’s wages by more than 25%, the amount of forgiveness decreases.
Please note: Participating in PPP may make you ineligible for other relief programs in the Act, such as the CARES §2301 employee retention credit.
We’re Here to Help
We are monitoring the COVID-19 pandemic closely and will continue to bring you updates as they come. As always, if you have any questions or concerns, please feel free to give us a call or reply to this email.