President Trump signed the CARES Act (the “Act”) on Friday, March 27, 2020. The Paycheck Protection Program (the “PPP”) included in the Act dedicates $349 billion for businesses, including nonprofits under 501(c)(3), veterans organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors – with 500 or fewer employees (including employees of your other affiliated entities) – that were in operation prior to February 15, 2020. Alternatively, businesses with more than 500 employees can apply either based on SBA’s industry size standards or “alternative size standards” based on tangible net worth and average net income. The PPP will be administered through the Small Business Administration (the “SBA”) and funds will be disbursed by banks in the form of a forgivable loan guaranteed by the SBA under the terms of the Act. Regular guidance on the PPP is available on the U.S. Department of Treasury website.
OVERVIEW OF PAYROLL PROTECTION LOAN
• Maximum loan amount – 2.5 times the average monthly Payroll Costs (defined below)
• Loan forgiveness – Subject to the forgiveness requirements set forth below, funds used to pay Payroll Costs, utilities, rent and some interest will be forgiven
• PPP loans do not require a personal guaranty or any collateral
• Amounts not forgiven will bear interest at 1.00% and must be repaid in 2 years
• Loan payments will be deferred for at least six months
APPLYING FOR A LOAN
• Most lenders began accepting applications for PPP loans from small businesses and sole proprietorships on Friday, April 3, 2020 and for independent contractors and self-employed individuals on Friday, April 10, 2020
• The form PPP loan application is posted on the U.S. Treasury Department’s website and can be found here: PPP Borrower Application
• The U.S. Treasury Department has also published guidance for borrowers on its website that can be found here: Borrower Information
• Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
• Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
• State and local taxes assessed on employee compensation; and
• For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment (capped at $100,000 on an annualized basis for each employee).
• Repayment: Borrowers will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. Only up to 25% of the loan can be used for costs other than payroll costs.
• Deferral: Any loan payments will be deferred for at least six months.
• Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount to a number below the monthly average headcount from February 15, 2019 – June 30, 2019 or January 1, 2020 – February 29, 2020 (your choice).
• Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made at most $100,000 annualized in (measured during the 8-weeks following the PPP loan date compared to the most recent full quarter prior to getting the PPP loan).
• Re-Hiring: Employers have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.
The attorneys at Underwood are available to answer questions regarding the Act. Please reach out to your contact at Underwood or to Mitchell Moses (email@example.com; (806) 239-9992).
i DISCLAIMER: PURSUANT TO THE ACT, THE SMALL BUSINESS ADMINISTRATION AND THE U.S. TREASURY DEPARTMENT ARE AUTHORIZED TO ISSUE ADDITIONAL REGULATIONS AND INTERPRETATIONS THAT MAY CHANGE OR ADD TO THE TERMS AND CONDITIONS STATED HEREIN AND IN THE ACT.