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Brief Summary of the Payroll Protection Program Portion of the CARES ACT:

(BBB webinar 3/29/20 Jonathan Gallagher, DEO, Shelley Adday. CHRO)

How it can benefit your business:

Paycheck Protection Program “PPP”, $350B loan program for businesses.  The intention is to provide unsecured (and forgivable) loans to small businesses with the goal to keep employees on the payroll.

  • Term period is 2/15/20 through 6/30/20
  • 100% government guaranteed
  • Can be 100% forgivable if utilized for specific expenses
  • Retroactive back to 2/15/20.  If the business laid-off employees, they can be rehired with no penalty and potentially include the number of employees into the forgivable calculation.

Who can apply for the loan:

  • Any business with less than 500 employees
  • Includes sole proprietors
  • All businesses that could qualify for an SBA loan before the COVID-19 crisis

Loan Details:

  • The loan amount is the lesser of $10M or 2.5X your average monthly payroll expenses.
  • Interest is capped at 4% and payments can be deferred up to 6 – 12 months
  • No credit check, no personal guarantee
  • Must have been in business and paid employees before 2/15/20

PPP – Loan Forgiveness for funds used within the 8 weeks following the loan origination:

The loan may be forgiven UP TO 100%.  which includes:

  • Payroll costs (during the 8 weeks following the origination date)
  • can include mortgage interest on commercial properties purchased before 2/15/20
  • if renting (must have signed the lease before 2/15/20) can add the rents for the 8 weeks following the origination of the loan
  • All utility payments (during the 8 weeks following the loan origination).

PPP – Calculation for maximum loan amount:

The loan application is based on the prior 12 months:

Add together:

  • Payroll costs – wages to employees and certain independent contractors (if acting like regular employees), employee’s income cannot exceed $100,000 annually
  • employer contributions to health insurance
  • Employer contributions to retirement

Above payroll costs divide by 12 = monthly “payroll costs”

Monthly payroll costs X 2.5 = maximum loan amount

Valuation of Forgiveness of the Loan:

Valuation shall be in the immediate 8 weeks following the origination of the loan.  Assume there will be a requirement to support payments.

EIDL Loan (Economic Injury and Disaster Loan) and PPP loan

The Economic Injury Disaster Loan Program (EIDL) can provide up to $2 million of financial assistance (actual loan amounts are based on amount of economic injury) to small businesses or private, non-profit organizations that suffer substantial economic injury as a result of the declared disaster, regardless of whether the applicant sustained physical damage.

You caan apply for both, but you cannot double dip, that means you cannot use both funds for the same purpose.

public service student loans

Resources:

Better Business Bureau webinar: CARES Act and Families First Cononavirus Response Act

US Senate Committee on Small Business & Entrepreneurship – The Small Business Owner’s Guide to the CARES Act.

US Chamber of Commerce – Coronavirus EMERGENCY LOANS, Small Business Guide and Checklist

MUSINGS FROM DIANE:

Whenever there is new law, or a new interpretation of an existing law – SLOW DOWN.  The truth is no one really knows what it means or what the consequences will be if you act.  The process is the following: new law is created (either through the legislative process or the courts), creative lawyers decide to apply the new law to certain facts, the court may or may not agree with the lawyer’s interpretation and come out with a decision that does or or does not follow the new law.  One of the parties may appeal and the case goes up to a higher court.  Years later there is a “final” decision until the law changes again.
When it comes to the new law dealing with COVID-19, no one, including the people who wrote the law, really know how that law will be interpreted and applied.  Many times you can ask the drafters of the law and they will give opposing opinions on what something means.  So, be very cautious in taking the advice from anyone, including a lawyer, how to interpret this extremely complicated law, and the others that will definitely follow.  Take is slow before acting.

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Diane L. Drain

Diane L. Drain, bankruptcy attorney, retired law professor, mentor and community spokesperson.

About Diane Drain:

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