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  • Diane Shenk

Paycheck Protection Plan The Coronavirus Aid, Relief and Economic Security (CARES) Act

Updated: Jun 18, 2020

Paycheck Protection Plan The Coronavirus Aid, Relief and Economic Security (CARES) Act dedicates $350 billion to small business relief.

The Act includes the Paycheck Protection Plan (PPP), to provide cash-flow assistance for employers to maintain payroll during this crisis through SBA loans. Attractive features include the opportunity for debt forgiveness, no loan fees, a 6-month deferral on loan payments and no personal guarantees or collateral required. Funding is available through June 30, 2020, and applying quickly is recommended.

  • It is available to small businesses and not-for-profits with no more than 500 employees, self-employed individuals and independent contractors.

  • Funding cannot exceed the lesser of $10 million or 2.5 times the company’s average monthly payroll.

  • Eligible expenses include payroll costs, rent, interest on mortgages and utilities if the agreements were in place before Feb. 15, 2020.

  • You must apply for loan forgiveness through your lender. Documentation is required. Loan forgiveness is subject to reductions for decreases in employee wages and headcount.

  • Principal and interest payments are deferred for six months after disbursement. Loan amounts not forgiven will have a maximum term of two years at a maximum interest rate of 0.5%.

  • All current SBA lenders can provide funding and others are expected to be added quickly.

Treasury Secretary Steven Mnuchin has promised that by this Friday small business owners can apply for a new, forgivable loan to help keep their businesses afloat during the coronavirus crisis.

Nearly $350 billion has been allocated for that purpose in the new economic aid package signed into law last week.

Unless further technical guidance is issued soon, it might be tough for many lenders to launch on Friday lenders should be ready to go by next week.

Many have already done what they can to prepare for an expected surge in demand.

Here's what small business owners need to know.

Who is eligible to apply?

Generally, any small business with 500 or fewer employees is eligible.

That includes sole proprietorships and independent contractors. It also includes nonprofits, veterans organizations and tribal businesses.

In certain circumstances, businesses with more than 500 employees also may qualify.

Applications will be accepted up to June 30. But the program is on a first come, first serve basis.

What is the money for?

The goal of the loan program is to help small businesses continue to pay their employees and their overhead costs in order to stay afloat for the next couple of months.

So long as you use the borrowed funds to make payroll and to pay expenses, such as utilities and your rent or mortgage, you won't have to repay the loan and you will not owe income tax on the forgiven amount.

In order for your loan to be fully forgiven you must maintain your headcount and not reduce employees' pay.

I had to let my employees go already. Does that mean I can't get a loan?

You still can, so long as you can show you had employees as of Feb. 15, 2020. Once approved for a loan, you can use the money to rehire your staff.

The loan forgiveness provisions will apply so long as employees are rehired by June 30, according to senior Treasury and Small Business Administration officials.

What do I need when I apply?

Fill out a two-page application (attached).

You must show lenders proof that your company was in operation on Feb. 15, 2020 and that you had employees for whom you paid salaries and payroll taxes.

In addition, you'll need to show proof of your average monthly payroll costs in 2019 (or for the first two months this year if your business is new).

Independent contractors and the self-employed, who must wait until April 10 to apply, need to show proof of "payroll and other certain expenses" according to Treasury.

You will not have to provide a personal guarantee or collateral to secure a loan, as you normally would for an SBA loan. But if you use the money for fraudulent purposes you will be subject to criminal charges.

You will not be charged loan fees.

How much money can I get?

Loans will be made in an amount equal to 2.5 months of your average monthly payroll costs in 2019 (or the average of the first two months of this year if your business is new).

Does the money need to be paid back?

You will not have to pay back the loan so long as you use at least 75% of the money you get on payroll costs (including wages, benefits, payroll taxes plus state and local wage taxes). and the rest of the funds are spent on your business' rent or mortgage, utilities and other overhead expenses. The money must be spent in the first eight weeks after you receive the loan.

In other words, if you spend the borrowed money for authorized purposes over the first two months of the loan, that obligation will be forgiven. And the amount forgiven will not be treated as taxable income to you.

At the end of eight weeks, you'll have to show your lender proof of your expenses during that period.

Payroll costs eligible for forgiveness may not exceed $100,000 per employee.

When would I have to pay the loan back if it's not forgiven?

If any part of the borrowed money is used for unauthorized purposes, that amount will not be forgiven. And you will have to repay it over two years at a 0.5% interest rate.

There's an automatic six-month deferral on payments for all borrowers. So you would need to start paying it back, with interest, after six months.

Where can I get the loan?

All SBA-approved lenders as well as federally insured depository institutions, federally insured credit unions.

If you've never taken out an SBA loan before, you might go to your primary bank first because lenders will be operating under so-called Know Your Customer regulations and that process will be streamlined if you've previously worked with the lender.

Stay Safe & Healthy


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