UPDATED 6/7/2020
Paycheck Protection Program – HR748 CARES Sec 1102 and HR7010 (6/5/20)
- Most businesses with <500 employees are eligible including 501c(3) nonprofits, 501c(19) (veterans organization) nonprofits, and 501c(12) telephone cooperatives
- Sole proprietors, self-employed, and independent contractors ARE eligible for this program
- EXCLUDED: Household Employers (individuals who employ household employees such as nannies or housekeepers) are NOT eligible
- Includes employees covered full time, part time, or other basis - The covered period is defined as February 15, 2020 to December 31, 2020.
- The loan amount is determined by:
o The average total monthly payments for payroll costs incurred during the 1 year period before the date the loan is made TIMES 2.5 (Approx 10 weeks) plus any SBA EIDL made between 1/31 and 4/3 less any EIDL grant (advance)
o There are provisions for adjusting the calculation for seasonal businesses and businesses who have been in business less than a year
o Maximum loan amount is $10,000,000
Eligible uses of loan
Payroll costs include:
a) Payments made to employees that are:
·Employee salaries (up to $100,000), commissions, or similar compensation including cash tips
· Group health care and retirement benefits, paid sick and family leave, insurance premiums
· Payments to Independent Contractors (1099) are NOT included
· Most State or local payroll taxes (excludes federal taxes)
· Any employee whose principal place of residence is outside of the US is EXCLUDED.
· Any payments under the Families First Coronavirus Response Act (FFCRA) are EXCLUDED.
b) 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
· That is in an amount that is not more than $100,000 in 1 year, as prorated for the covered period
c) Payments of interest on any mortgage obligation (no prepayments allowed)
d) Rent including rent under a lease agreement
e) Utilities
f) Interest on any other debt obligations incurred before the covered period (not eligible for loan forgiveness)
Loan Details:
- This program will be administered through banks that currently provide SBA loans
- The Administration may expand this program to additional institutions to provide loans
- No personal guarantee is required during the covered period
- No collateral is required
- Loan maturity is 2 years for loans approved prior to 6/5/20 but can be modified to a longer term if borrower and lender agree; Loans made on or after 6/5/20 will have a minimum 5 year maturity and maximum 10 year maturity.
- The loan interest rate is 1% during the covered period
- Loan payment deferment including payment of principal, interest, and fees, is deferred until the date on which the amount of forgiveness determined under section 1106 of the CARES Act is remitted to the lender.
- If an eligible recipient fails to apply for forgiveness of a covered loan within 10 months after the last day of the covered, such eligible recipient shall make payments of principal, interest, and fees beginning on the day that is 10 months after the last day of such covered period.
- A business can also get an SBA Economic Injury Disaster Loan (EIDL) as long as the EIDL is used for a purpose other than paying payroll costs.
- No prepayment penalty
Loan Forgiveness (Sec 1106)
- Loans will be forgiven up to 100% of the principal amount financed and accrued interest.
- 60% of the loan must be used for payroll costs.
- The covered loan period eligible for forgiveness is the 24 week period beginning from loan origination or December 31, 2020, whichever is earlier.
- A business must provide documentation to the lender of the payment of the amounts listed above during the loan period in order to be reimbursed. Forgivable costs include payroll, rent, mortgage interest payments, and utilities during the covered period.
- Utilities include electricity, gas, water, transportation, telephone and internet that was in service prior to February 15, 2020
-NOTE: Interest on debt obligations incurred before the covered period are NOT eligible for loan forgiveness
- Any loan forgiveness received is NOT taxed as income. As of May 11, the IRS ruling is that all business expenses related to this loan forgiveness are NOT deductible business expenses.
- Generally, the loan forgiveness will be reduced if:
1) The total salary or wages are reduced in excess of 25% compared to the most recent full quarter prior to the loan date. However, employees paid more than $100,000 in 2019 are not subject to the 25% limitation on salary decreases AND/OR 2) The average # of Full Time equivalents (FTE) per month during the 8 week covered period divided by either at the Borrowers discretion: a) beginning on February 15, 2019 and ending in June 30, 2019 OR b) beginning on January 1, 2020 and ending on February 29, 2020 Example: From January 1 through February 29 a company had 4 FTE. During the 8 week covered period the company had 3 FTE and had $10,000 in eligible expenses.
The amount of the loan forgiven would be $10,000 * (3/4) = $10,000 * .75 = $7,500.
EXCEPTION FOR REHIRES – If from February 15, 2020 through April 26, 2020 there is a reduction in FTE or salary and by no later than December 31, 2020 the company has eliminated the reduction of staff (ie rehired FTE) then the loan forgiveness will not be reduced.
EXCEPTION FOR EMPLOYEE AVAILABILITY - During the period beginning on February 15, 2020, and ending on December 31, 2020, the amount of loan forgiveness will not be reduced if an eligible recipient, in good faith is able to document -
(i) an inability to rehire individuals who were employees of the eligible recipient on February 15, 2020; AND
(ii) an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; OR
is able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.
SBA Emergency EIDL Grant - If a business receives an emergency grant from the SBA EIDL program - the PPP loan forgiveness amount is reduced by this grant.
Example: Your loan forgiveness from PPP is calculated at $15,000 but you received a $10,000 SBA EIDL emergency grant. Your PPP loan forgiveness amount will be $5,000 and you will still have a $10,000 PPP loan with your lender.
Recipients of the Employee Retention Tax Credit (CARES Sec 2301) are NOT eligible to participate in this program.
Recipients of PPP Loan forgiveness ARE eligible for the Payroll Tax Deferral.
Feel free to reach out to Paula, Molly, or me with any questions. Also continue to follow EDGe on social media and on our EDGe blog for updates on other small business assistance measures.
Eric Glymph
Financial Strategist / Founder
EDGe Business Planning