PAYCHECK PROTECTION, LOAN FORGIVENESS, AND TITLE I OF THE CARES ACT
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020. Title I of the CARES Act is separately titled the “Keeping American Workers Paid and Employed Act”. Within it are conditions for loan forgiveness and the Paycheck Protection Program (“PPP”).
This section of the CARES Act greatly impacts the availability of Small Business Association (“SBA”) loans. The purpose of Title I of the CARES Act is to assist underfunded businesses (including nonprofits) so they can keep their employees on payroll, covered by health insurance, and off unemployment.
The PPP is created by Section 1102 of the CARES Act. It provides $349 billion in loan assistance to small businesses and nonprofits. This money is, however, available on a first-come, first-serve basis to small businesses. These loans are 100% guaranteed by the SBA.
The loan would be for a maximum of ten years from the date of the application for loan forgiveness, unless it is forgiven on an earlier date because of the provisions of the legislation. The interest rate of the loan cannot exceed 4%. There are no loan fees to the borrower, prepayment fees, or charges. There is no personal liability for PPP Loans from individual shareholders, members, or partners of the borrowers . . . unless the loans proceeds are used for unapproved purposes.
Eligible businesses must provide their lender with income and expense documentation for submission to the SBA. Importantly, the application deadline is June 30, 2020.
Eligible businesses include:
Small businesses in the restaurant and hospitality industry that have more than one physical location are also eligible if they do not have more than 500 employees. An eligible business must have been in operation on February 15, 2020, and have been paying independent contractors or paying employee salaries and payroll taxes.
The maximum loan a business that was operating between February 15, 2019, and June 30, 2019, can obtain is the lesser of:
For businesses that were not open between February 15, 2019, and June 30, 2019, the maximum loan they can obtain is the lesser of:
Payroll costs include:
Payroll costs do not include:
The amount received in the loan may be used for:
The loan may also be used to pay for other purposes, such as working capital and equipment purchases. However, the portion of the loan spent on such things would not be subject to loan forgiveness.
Section 1106 of “Keeping American Workers Paid and Employed Act” creates terms and conditions for loan forgiveness. Generally, the amount forgiven will be considered cancelled debt, but excluded from gross income.
The amount of the loan forgiven cannot exceed its principal amount. To apply for forgiveness, the recipient must show the lender an application with the following materials:
The amount of the loan that is forgiven can be reduced, though. This reduction can be based on a number of factors including:
Employers may be exempt from the loan forgiveness reduction if employees are rehired or their wages increased before June 30, 2020. There are a number of ways to measure whether a reduction of employees has occurred.
Right now, the SBA has not created forms or rules for governing how the PPP handles loan forgiveness. It is presently anticipated that lenders will administer the forgiveness in addition to the loans, assuming the employer provides the appropriate documentation.
As one can imagine, there are many more facets and provisions within the CARES act. Even the “Keeping American Workers Paid and Employed Act” is more cumbersome than just this summary. So, it is extremely important to seek out an attorney to help navigate the waters of the CARES Act before applying for a loan or any forgiveness.
In these difficult times, we at Griffin Alexander, P.C., are prepared to help you manage your response to COVID‑19.
Stay strong, safe, and healthy,
Griffin Alexander, P.C.
The information in this Client Alert is provided solely for information purposes. It should not be construed as legal advice on any specific matter and is not intended to create an attorney-client relationship. The information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based upon particular circumstances. Each legal matter is unique, and prior results do not guarantee a similar outcome.
ATTORNEY ADVERTISING MATERIAL © 2020 Griffin Alexander, P.C. All rights reserved.
For any questions about this blog, or to schedule a consultation with an attorney, contact Griffin Alexander, P.C. at 973-366-1188 or through our website here!