In response to the economic impact of the coronavirus, the federal government has stepped in to release the largest stimulus package in U.S. history. Many of our clients have questions about the CARES Act’s Paycheck Protection Program (PPP). Although guidance is still unfolding from the Small Business Administration, we thought it would be helpful to share answers to some of the frequently asked questions.couple reviewing paperwork in front of laptop

How much of a loan/grant can I take?

If you have 500 or fewer employees (or qualify for one of the exceptions), you can receive up to the lesser of 2.5 times your average monthly payroll or $10,000,000.

In most instances, your average monthly payroll is calculated based on the one-year period before your loan date. Note that compensation above $100,000 per employee is not included in the calculation.

How do I make sure my loan principal will be forgiven?

You must use the loan for “eligible expenses” within an eight-week period after your loan’s origination date.

Eligible expenses include:

  • Payroll costs, including salaries up to $100,000 (annualized) per employee, health insurance premiums, commissions, cash tips, and state and local payroll taxes – but not federal payroll taxes1

  • Interest payments on mortgages for real or personal property (but not principal or pre-payments)2

  • Rent2

  • Utilities2

Note that it is likely that you will need to use at least 75% of the loan for payroll costs in order to receive full forgiveness.

Forgiveness is also decreased if you reduce your full-time employees, including cutting hours, during the “covered period” or you reduce the compensation of employees who may less than $100,000/year by more than 25% during the “covered period.” What is defined as the “covered period” is still awaiting full guidance. However, if you do not make any further cuts by 30 days after the enactment of the CARES Act and reinstate employees and compensation by June 30, 2020, you can avoid the reduction in forgiveness.

When can I apply?

You must apply by June 30, 2020, but you should apply as soon as possible.

On April 3, 2020, sole proprietorships and small businesses will likely be able to apply.

On April 10, 2020, self-employed individuals and independent contractors will likely be able to apply.

Where do I apply?

Existing SBA (Small Business Administration) lenders are a good place to start, although other banks and credit unions may eventually also process the loan.

You can find a list of the most active SBA lenders here.

How do I find out more?

The SBA website has more information on the Paycheck Protection Program. You should also consult your tax and legal counsel and your financial advisor.

In such an uncertain time with so many changes, we understand the CARES Act may be a lot to digest. We hope sharing answers to some common questions is a helpful resource for you and your small business. Please feel free to contact us or your financial advisor if you have additional questions about the Paycheck Protection Program or other provisions of the CARES Act.

 

This material is presented for informational purposes only and should not be construed as individual legal, tax, or financial advice. Individuals and businesses should always consult with their own legal, tax, and financial advisors.


1Does not include qualified sick leave or family leave wages that receive a credit under the Families First Coronavirus Response Act.
2Mortgages, rental contracts, and utilities contracts must have been established prior to February 15, 2020 to be eligible.
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