The CARES Act – What You Need to Know
Updated: Apr 24, 2020
The Payroll Protection Program - a $350 billion program enacted as part of the CARES Act to help small businesses during the pandemic – ran out of money within two weeks of being launched. Today, Congress approved an additional $310 billion for PPP loans.
It is anticipated that there will continue to be a significant demand for these loans and that these additional funds will be deployed quickly. Many small businesses had applications pending when the originally allocated funds ran out.
As previously noted, the PPP provides federally guaranteed loans to small businesses. Importantly, the loan may be forgiven if the business borrower either maintains its payroll or restores its payroll after the pandemic subsides.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act – the CARES
Act - was signed into law as part of the federal government’s response to the COVID-19 pandemic. Included within the CARES Act is the Paycheck Protection Program (PPP), a $350 billion program to help small businesses during the pandemic. The PPP provides federally guaranteed loans to small businesses. Importantly, the loan may be forgiven if the business borrower either maintains its payroll or restores its payroll after the pandemic subsides.
Indeglia PC is available to assist in interpretation of the CARES Act for your business and can help you find ways to claim and/or use available funding for your company.
A Summary of the PPP Program
The PPP loan program is open through June 30, 2020. Borrowers can apply through a participating bank, credit union, or other institution. A business is eligible to apply if it is: A small business with 500 or fewer employees;
Defined as “small” by SBA Size Standard that allows for higher employee threshold or is revenue based;
A small business with maximum tangible net worth up to $15 million and the average net income for full 2 fiscal years prior to application does not exceed $5 million;
A 501(c)(3) with 500 or fewer employees;
A sole proprietor, independent contractor, or self-employed;
A Tribal business concern that meets the SBA size standard; or
A 501(c)(19) Veterans Organization that meets the SBA size standard.
In addition, some special rules may make other businesses eligible:
If the business is in the accommodation and food services sector (NAICS 72), the 500-employee rule is applied on a per physical location basis;
If the business is operating as a franchise or receive financial assistance from an approved
Small Business Investment Company, the normal affiliation rules do not apply; and
Small businesses that have minority shareholders (private equity or venture capital) can still qualify if those shareholders relinquish certain rights.
To seek a PPP loan, a business will need to complete an application, submit documentation, and make a good faith certification that:
The uncertainty of current economic conditions makes the loan request necessary to support the ongoing operations of the business;
The business will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments;
The business does not have an application pending for a loan duplicative of the purpose and amounts of the requested PPP loan;
From Feb. 15, 2020 to Dec. 31, 2020, the business has not received a loan duplicative of the purpose and amounts of the requested PPP loan.
The amount of the PPP loan can be up to 2.5 times the business’s average monthly payroll costs, but it cannot exceed $10 million. The included monthly payroll costs is all compensation paid with respect to employees that is a:
salary, wage, commission, or similar compensation;
payment of cash tip or equivalent;
payment for vacation, parental, family, medical, or sick leave;
allowance for dismissal or separation;
payment for group health care and retirement benefits; or
payment of state or local tax assessed on the compensation of the employee
The following are excluded from monthly payroll costs:
Compensation of an individual employee in excess of an annual salary of $100,000;
Employer portion of payroll taxes;
Any compensation of an employee whose principal place of residence is outside of the United States; and
Qualified sick leave wages for which a credit is allowed under the Families First Coronavirus Response Act
The PPP loan may be forgiven in an amount equal to the amount the business spent during the 8-week period after the loan is originated:
Payroll costs (using the same definition of payroll costs used to determine loan eligibility)
Interest on the mortgage obligation incurred in the ordinary course of business
Rent and utility payments Interest on other debt obligations incurred before February 15, 2020
Not more than 25% of the forgiven amount may be for non-payroll costs.
The amount of loan forgiveness calculated above is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees. Reductions in employment or wages that occur between February 15, 2020 and April 26, 2020 (as compared to February 15, 2020) shall not reduce the amount of loan forgiveness if the business eliminates the reduction in employees or reduction in wages by June 30, 2020.