The federal Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) enacted on March 27, 2020 included the Paycheck Protection Program, which provides for $349 billion in forgivable loans for eligible small businesses and nonprofit organizations to cover payroll costs, mortgage interest, rent, and utilities for eight weeks during the COVID-19 emergency. Businesses may apply between April 3, 2020 and June 30, 2020, but are encouraged to apply as quickly as possible.
Who is eligible?
- Small business concerns, business concerns, nonprofit organizations, veterans organizations, Tribal business concerns, self-employed individuals, and independent contractors with 500 or fewer employees are eligible.
- Businesses in certain industries with more than 500 employees may be eligible if they meet applicable SBA standards.
What is the amount of the loan?
- The maximum loan amount is two months of the business’ average monthly payroll costs from the last year, plus 25%, up to $10 million and capped at $100,000 annualized for each employee.
What can the loan be used for?
- Payroll costs, including:
- Salary, wages, commissions, or tips up to $100,000 for each employee employee
- Employee benefits, including paid leave, allowance for separation or dismissal, group health care benefits, and retirement benefits
- State and local taxes on compensation
- For sole proprietorships and independent contractors: wages, commissions, income, and net earnings, up to $100,000 for each employee
- Interest on mortgage obligations incurred before February 15, 2020
- Rent under lease agreements in force before February 15, 2020
- Utilities for which service began before February 15, 2020
How can the loan be forgiven?
- The loan is forgiven to the extent it is used for payroll costs, mortgage interest, rent, and utilities in the 8 weeks after receiving the loan. Amounts used for other costs must be repaid over 2 years at 1.0% interest.
- Forgiveness will be reduced if the business: (1) decreases the number of full-time employees, or (2) decreases salaries and wages by more than 25% for any employee who earned less than $100,000 annualized.
- Businesses may restore full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020 until June 30, 2020 without a reduction in loan forgiveness.
How do I apply?
- Small businesses and sole proprietorships may apply through existing SBA lenders or through any federally insured depository institution or credit union, or Farm Credit System institution that is participating beginning April 3, 2020. Independent contractors may apply beginning April 10, 2020.
- The application is available through the Department of the Treasury here.
- An applicant must provide the lender with payroll documentation.
- An applicant must certify or acknowledge in good faith that:
- Current economic uncertainty makes the loan necessary to support ongoing operations;
- The funds will be used to retain workers and maintain payroll, or to make mortgage, lease, and utility payments;
- The applicant has not and will not receive another loan under the program;
- The applicant will provide the lender documentation that verifies the number of full-time equivalent employees on the payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting the loan;
- Forgiveness will be provided for the sum of documented payroll costs, mortgage interest payments, covered rent payments, and covered utilities;
- All information provided is true and accurate, and knowingly making a false statement to get a loan is punishable by law; and
- The lender will calculate the eligible loan amount using the tax documents submitted.
This material is for informational purposes only and should not be relied on for legal advice. For legal assistance with an employment or business matter, contact our Firm through the “Contact Us” page on our website, or calling us at 202-795-9999.