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Coronavirus Aid, Relief, and Economic Security (CARES) Act Passed 3/27/20

This $2 trillion emergency economic relief package is the biggest rescue package in US history. While there are many provisions of the new law, we are going to summarize the ones that will most affect small businesses.

Paycheck Protection Program Loans for Small Businesses

Qualifying small businesses are eligible for federal-guaranteed emergency “Paycheck Protection Program” (“PPP”) loans that have an interest rate capped at 4% for business interruption because of the coronavirus.

  • Loans are to help small businesses cover (a) payroll costs for employees earning less than $100,000 in annual salary and (b) other working capital expenses not already covered by previous federal coronavirus
  • Loans are eligible for forgiveness, but any unforgiven portion is repayable after 10 years with an option for deferral.
  • There is no pre-payment penalty. ­There is also no double-dipping from SBA Economic Injury Disaster Loan (EIDL) program.

Who is eligible?

  • Small businesses with fewer than 500 employees, including sole proprietors/independent contractors/self- employed persons
  • Eligible borrowers must make good faith certification to lender that borrower needs the funds to operate because of current economic disruption and will deploy funds for eligible uses.

What is the maximum loan amount? ­

A business’ total average monthly payroll for the previous year, excluding compensation above $100K/employee, times 2.5.

What can the money be used for?

Payroll costs, employee benefits, including commissions or similar compensation; operating costs (e.g., rent; mortgage interest payments; utilities; interest on debts incurred before covered period)

Does the loan have to be paid back?­

If a business can demonstrate that the loan was used for eligible purposes, including payroll/benefits (excluding employee comp above $100K); mortgage interest; rent; and utilities, all or part of the loan will be forgiven.

  • “Covered Period” means the eight-week period beginning on date lender originates PPP loan for borrower.
  • The amount forgiven is limited to the principal amount borrowed and does not include interest.
  • If the business reduces salaries, its number of employees, or both during the first 8 weeks after receiving the loan, the loan amount available for forgiveness is reduced.­ But, if a small business borrower rehires or ends the salary reduction(s) before June 30, 2020, the small business has eliminated the layoff or salary cuts and its loan amount eligible for forgiveness is not affected.

In addition to the steps above, the Federal Reserve expects to announce soon the establishment of a Main Street Business Lending Program to support lending to eligible small businesses.

Published: 03/30/2020

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