This article was updated on April 8, 2020. For detailed changes, refer to the bottom of the page.
You are likely aware that the government is providing assistance to small businesses, but knowing how to navigate this landscape to get your questions answered can be daunting.
foreUP would like to provide you with COVID-19 resources so you have access to important information to help weather this pandemic and its effect on your business. Our teams have been given this information, and are here to help.
April 2, 2020:
The President has signed the CARES Act to help address the unprecedented public health and economic crisis related to COVID-19. One critical component of the CARES Act that may help courses weather this economic crisis is the Paycheck Protection Program offered through the Small Business Administration (SBA) with $349 billion in loans for small businesses, sole proprietors, independent contractors, and 501(c)(3) nonprofits.
We have gathered information that will continue to come from the SBA. While it is recommended that you consult your own financial advisors and bankers to help you navigate your way forward, the following Q&A outlines options that will be available through the Paycheck Protection Program to protect your business and employees.
What can the loans pay for?
These loans can cover many business expenses that have been impacted by the COVID-19 outbreak. These include:
- salaries and wages paid to employees
- paid vacation
- parental, family, medical or sick-leave
- allowance for dismissal or separation
- health insurance benefits
- retirement benefits
- payroll taxes
- interest on mortgage payments
- payment of rent on a lease
- utility payments
The loans can be retroactive for expenses dating back to February 15, 2020.
How much of a loan can I receive?
Loans are designed to cover two-and-a-half months of payroll costs, using a calculation of the average monthly payments during the last year period before the loan is issued. For example, if your annual payroll payment was $600,000, you can request a loan of up to $125,000 ($600,000/12 = $50,000, $50,000 X 2.5 = $125,000).
Payroll costs include: employee salary, wages (including commissions and cash tips); payment of vacation; parental, family, medical or sick-leave; allowance for dismissal or separation; payment required for group health benefits (including insurance premiums); payment of retirement benefits; and payment of state or local tax assessed on employee compensation; and sole proprietor income or independent contractor compensation not in excess of $100,000 (amount over $100K is excluded for each individual.) No loans may be larger than $10 million.
Am I qualified for a loan?
If your business has under 500 employees, existed on February 15, 2020, had employees for whom it paid salaries, benefits and payroll taxes, and has been impacted by COVID-19, then you are likely eligible for a loan. You must make a good faith certification that you have been impacted by COVID-19 and will use the funds to retain workers and maintain payroll and other debt obligations.
What about fees and other tests of whether I’m eligible?
There are no borrower or lender fees for participation. Additionally, unlike other SBA loans, you are not required to prove you cannot receive credit elsewhere in order to receive funds provided under this program. Typical collateral and personal guarantee requirements are also waived under this program.
What are the terms of the loan? What is required for loan forgiveness?
Borrowers are eligible for loan forgiveness equal to the amount they spend on payroll costs during the eight-week period following loan issuance. Loan forgiveness is also available for interest payments on a mortgage, payment of rent on a lease, and utility payments, as long as these costs were already in place before February 15, 2020 (non-payroll costs are limited to 25% of the total loan forgiveness request). Notably, eligible payroll costs do not include compensation in excess of $100,000 for employees who receive more than $100,000 (annually) in wages. Courses with tipped employees can receive forgiveness for additional wages paid to such employees during the covered time.
The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year and by the reduction in pay of any employee beyond 25 percent of their prior year compensation. Borrowers who re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.
Critically, the forgiven portion of this loan will not be included in the borrower’s taxable income.
Loan amounts not forgiven at the end of one year shall be carried forward as an ongoing loan with a term of 2 years, at 1% interest.
When will I have to make payments?
There is complete deferment of loan payments for six months, so if you expect to have your loan forgiven, this loan effectively acts as a grant.
What do I do next?
Contact your bank to see if they are participating in this SBA program. If they are not, reach out to another bank in this list of the Top 100 SBA Lenders published by the SBA https://www.sba.gov/article/2020/mar/02/100-most-active-sba-7a-lenders.
You will need to calculate the payroll costs in a spreadsheet using payroll journal reports from your payroll service provider. You may also need to provide recent Federal Income Tax Returns, Financial Statements for 2019 (if you haven’t filed a Federal Income Tax Return yet) and recent Federal Payroll Tax Returns and Payroll Journal reports from your payroll service provider with your loan application.
April 8 Content Adjustments
- No contract labor coverage
- $100K+ excluded for each individual
- 8 week prorated compensation
- Unforgiven loans at 1% interest over 2 years if not paid within the end of one year
- Six month complete deferment
- You will need to calculate payroll costs in a spreadsheet using payroll journal reports from your payroll service provider.
- You may also need to provide recent Federal Income Tax Returns with your loan application