CARES Act - Paycheck Protection Program

Updated: May 11

UPDATED 5/11/2020

Paycheck Protection Program (Sec 1102):

- Most businesses with <500 employees are eligible including 501c(3) nonprofits

- 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 June 30, 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

- The loan maturity is 2 years

- The loan interest rate is 1% during the covered period

- Loan payment deferment is 6 months (interest will continue to accrue)

- 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.

- 75% of the loan must be used for payroll costs.

- The covered loan period eligible for forgiveness is the 8 week period beginning from loan origination.

- 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 June 30, 2020 the company has eliminated the reduction of staff (ie rehired FTE) then the loan forgiveness will not be reduced.

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 NOT 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

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EDGe supports businesses with all aspects of finance and accounting including strategy, budgeting, forecasting, cash flow management, financing, and operational efficiency.


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