Highlights of the Paycheck Protection Program under the CARES Act
For the latest information and resources on Coronavirus, please visit the RCM&D COVID-19 Resource Center at https://info.rcmd.com/covid19.
The COVID-19 global public health crisis has affected seemingly, all aspects of life for both individuals and businesses. As more states declare stay-at-home orders, small businesses are among those hardest hit financial turmoil. Last week alone, more than 6.6 million people filed for unemployment— more than the entire population of the state of Maryland.
On March 27th, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The estimated $2+ trillion CARES Act includes a Paycheck Protection Program as well as numerous other forms of aid to help small businesses protect employees and their own financial viability during this unprecedented period in history.
The Paycheck Protection Program Basics
One of the biggest aspects of the CARES Act pertaining to small businesses is its amendment to the Small Business Act (SBA) – or the Paycheck Protection Program. This amendment creates a new Business Loan Program category. From the covered period of February 15th, 2020 to June 30th, 2020, the amendment allows the Small Business Administration to provide 100 percent federally-backed loans up to a maximum amount to eligible businesses to help pay operational costs like payroll, rent, health benefits, insurance premiums, utilities, etc. The SBA defines eligible businesses as those with 500 or less employees, or if applicable, the size standard in number of employees established by the administration for the industry of that specific business.
Loan amounts under the amended SBA are forgivable for employers that maintain or restore pre-crisis payroll. The Administrator of a loan may guarantee covered loans under this program with the same terms, conditions and processes as a loan made under the SBA’s previous program. Businesses are not required to provide collateral or personal guarantee for a loan. Additionally, the interest rates of these loans are not to exceed 4 percent. Along with no subsidy recoupment fee and no prepayment penalty, the loan administrator also has no recourse against any individual, shareholder, member, or partner of an eligible loan recipient for non-payment, as long as the recipient does not use the loan for any unauthorized purposes.
Authorized Purposes for Loans
Loan amounts generally are 250 percent of average monthly “payroll costs” during the last year (with different lookback period options for new and seasonal businesses), plus any outstanding EIDL amounts to be refinanced, up to $10 million. This list from The Council for Insurance Agents and Brokers’ (CIAB) legal team at Steptoe & Johnson, LLP covers what purposes businesses can utilize their loans on:
- Payroll costs:
- Includes: compensation to employees, such as salary, wage, commissions, cash, etc.; paid leave; severance payments; payment for group health benefits, including insurance premiums; retirement benefits; state and local payroll taxes; and compensation to sole proprietors or independent contractors (including commission-based compensation) up to $100,000 in 1 year, prorated for the covered period;
- Excludes: individual employee compensation above $100,000 per year, prorated for the covered period; certain federal taxes; compensation to employees whose principal place of residence is outside of the US; and sick and family leave wages for which credit is allowed under the Families First Act;
- Group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
- Salaries, commissions, or similar compensations;
- Payments of interest on mortgage obligations;
- Rent/lease agreement payments;
- Utilities; and
- Interest on any other debt obligations incurred before the covered period.
Full Analysis of the Paycheck Protection Program
Access the full Paycheck Protection Program analysis from the CIAB legal teal at Steptoe & Johnson, LLP to answer all of your questions regarding the program, including:
- Who is eligible?
- How to count your employees
- How to apply for the loan?
- What is the maximum loan amount?
- How much of the loan amount will be forgiven?
- What considerations should you make before applying?
- And more.
Have additional questions? We’re here to help.
The CARES Act provides a safety net for many individual Americans and businesses alike. As COVID-19 continues to wreak havoc, it is more important than ever to familiarize yourself with this changing legislation to protect yourself, your business and your employees. The CIAB is hosting a webinar on Monday, April 6th “Unpacking the CARES Act Paycheck Protection Loan Program” that can provide additional useful information regarding the CARES Act.
For more information on how your business can utilize the CARES Act, talk to your trusted RCM&D advisor today. We’re here to help you find solutions that fit your individualized needs.