Financial Relief For Businesses

The CARES Act has been established to help American businesses and the economy recover from the effects of the coronvirus. Provisions in the ACT provide up to $349 billion in funding to qualified businesses with an opportunity for a portion of the loan forgiveness, under certain circumstances.  The main points of the provision are:

• Loans taken under the CARES Act can be used for a number of business purposes which include payroll, rent, utilities,  mortgage interest (not principle) and interest on debt you had before Feb 15, 2020
• Your loan amount is limited to 2.5 months of regular payroll costs subject to a limit of $100,000 in annual salary per worker. )
• CARES Act loans will have up to 10 year term at 4% interest. Additionally, interest and principle can be delayed up  to 12 months. 
• Loans can be acquired without personal guarantees or collateral
• There are no SBA fees but lender processing fees may be assessed
• Early payoff penalty has been waived
• A portion of the loan may be forgiven.  Forgiveness amount must be used for pay payroll costs (including salaries and benefits), rent, utilities and mortgage interest during the 8 weeks following loan acquisition .  SBA provisions require that 75% of forgiven amount be used for payroll.  A reduction in payroll will reduce the forgiveness amount which will be computed by multiplying the quotient of average full time employees during the 8 week period  divided by the average full time employees for the period from Feb 15, 2019 to June 30, 2019 or from Jan 1, 2020 to Feb 29, 2020.  See next section for additional information.
• Very specific financial information is required in order to qualify for the loan
• Accountability and proper documentation will have to be substantiated to qualify for the loan

A key feature of the CARES Act Paycheck Protection Loan is the provision allowing your business to be completely absolved of a portion of the loan.  However,  it comes with a number of requirements, which if misunderstood, will immediately disqualify you from this relief.  Here are the main points:

Main Provisions

• The loan proceeds must be used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made.  
• Employee and compensation levels are maintained. 
• Payroll costs are capped at $100,000 on an annualized basis for each employee. 
• Not more than 25% of the forgiven amount may be for non-payroll costs. 
•  Loan payments will be deferred for 6 months  and up to  1 year
• Loan interest rate is .5% with a duration of 2 years. The interest rate is capped at 4% for a maximum term of 10 years.

Who is eligible to apply?

• Most small businesses with under 500 employees, provided them meet the strict SBA requirements
• Be a business that is independently owned
• Be a business located and operated in the US

Where to apply?

• You can apply at any SBA lender such as your current bank or a federally insured credit union. Other private lenders will be able to qualify once they receive federal approval. 

What you need to apply?

• You'll need to fill out the application. See below to download.
• Specified payroll information. Most will have to work with their accountant to access this information since it requires adjustments and allocations. 
• All information you provide will have to include supporting documents and some may need to be certified. 
• Filed tax returns will have to be included

How long do I have to apply?

• Application window is between  April 3rd and June, 30th, 2020

How much can I apply for?

• Your maximum loan amount can equal up to 2 months of your average monthly payroll costs from last 12 months plus an additional 25% of the amount.  Payroll costs are capped at $100,000  per employee.
•  For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee. 

How much of the loan can be forgiven?

• Your entire loan amount may be eligible for forgiveness provided you maintain the same level of payroll expenses and use the proceeds to pay for payroll, mortgage interest, rent and utilities.  
• You must maintain your payroll level or risk a reduction in your loan forgiveness.  A reduction in payroll will proportionally reflect on your reduction in forgiveness amount.  For instance, a 25% reduction in payroll will equal to a 25% reduction in forgiveness.  If you already reduced your payroll, you can rehire them by June 30th to qualify for the full loan forgiveness program. 
• To qualify, you must use a minimum of 75% of the loan towards your payroll expenses. 
• Loan proceeds must be used to cover 8 weeks of expenses towards payroll, mortgage interest, rent and utilities. 
• The period for which the loan can be eliminated extends from Feb 15th, 2020 to June 30, 2020.  Borrowers can decide which 8 week period they want to use towards the covered period. 

What are the loan fees? 

• There are no application fees, aside from minimal fees imposed by banks for processing your application.  This might be waived depending on your bank institution's policies.