Coronavirus Relief for Your Small Business

The Covid-19 pandemic has placed an enormous amount of stress on our economy.  This is no different for millions of small business owners around the country.  On March 27, 2020, the $2 trillion CARES Act was signed into law, giving relief to individuals, small businesses, and large corporations.

The Payroll Protection Program (PPP) of the CARES Act is slated to give up to $349 billion in forgivable loans to small businesses.  This program is designed to assist small businesses in the payment of payrolls costs, employee benefits, mortgage interest, rent, and utilities.  If the loan is used strictly for qualified costs, and the business continues to maintain employee and wage levels, the loan is eligible for complete forgiveness.

It is important to note that there are different types of relief available to small business owners. This article solely focuses on the Payroll Protection Program. Grewal Law PLLC will be hosting a Facebook live event with a Certified Public Accountant on Monday, April 6, 2020 at 3:00 p.m. to answer any questions you may have. 

Loan Amount and Use:

• The amount your business is eligible to receive is equal to 2½ times your average monthly payroll, excluding any employee earning more than $100,000/year. The amount per business may not exceed $10 million.  The monthly average is based on the 1-year period prior to the date of the loan.
• This money may be used to pay:
  • Payroll Costs;
    • This includes: salary, wages, and other compensation; vacation, parental, family, medical, or sick leave; group health benefit payments; and, retirement benefit payments.
    • This does not include: wages to an individual receiving more than $100,000 in yearly salary; certain taxes; wages to employees that reside outside of the United States; and, certain sick and family leave pay in which the business receives a credit under the Families First Coronavirus Relief Response Act.
  • Mortgage Interest
    • This excludes prepayments of interest or payments on the principle of the mortgage for loans beginning before February 15, 2020;
  • Rent
    • So long as the lease agreement began before February 15, 2020;
  • Utilities
    • So long as the services began before February 15, 2020; and,
  • Interest
    • Including on other debt obligations incurred before February 15, 2020.

Loan Forgiveness:

• Section 1106 of the CARES Act provides that a recipient of a PPP loan will be eligible for forgiveness of the loan.
  • Generally, the amount of forgiveness will equal the total costs described in the above section: qualified payroll expenses, mortgage interest, rental obligations, and utilities.
  • However, the amount of forgiveness may be reduced if:
    • The number of full time-employees are reduced;
    • Decreases in salaries/wages by more than 25% for employees making less than $100,000; and,
    • The small business does not restore full-time employment and salary levels from changes made between February 15, 2020 and April 26, 2020.
  • If you do not meet the qualifications for loan forgiveness, the loan will become 10-year loan at 4%.
  • For a more complete explanation of the loan forgiveness, please contact a Certified Public Accountant and/or a Loan professional. This is not meant to be legal advice.

To Qualify:

• Generally, the PPP is for any small business with less than 500 employees.
• This program is available to a variety of business entities such as:
  • Corporations, LLC’s, and partnerships;
  • Sole proprietorships, independent contractors, those that are self-employed; and,
  • 501(c)(3) private non-profit organizations.
• Your business must have been operational as of February 15, 2020 and had paid employees’ salaries and payroll taxes or independent contractors.
• You or your business will not qualify if:
  • The business or any owner cannot participate in a transaction with the Federal Government;
  • The business or any owner is presently involved in bankruptcy; or,
  • If the business, any owner, or any business owned/controlled by any of them has a delinquent loan with the SBA.

How to Apply:

• According to the Treasury Department, small businesses may begin applying on April 3, 2020. Independent contractors and self-employed persons can apply starting April 10, 2020.
• The CARES Act provides that the covered period for this program will last until June 30, 2020; however, there is a cap on the amount of money available under this program, so it is advisable to apply as soon as you can.
• Eligible Small business may apply with:
  • Participating federally insured depository institutions (such as banks), federally insured credit unions, and Farm Credit System institutions. (as defined by 12 USC 1813).
  • Any SBA-certified lender.
    • Click here for a list of the most active SBA lenders for 2019.
  • While the application process will depend on the institution you are applying with, you can look at this sample application provided by the U.S. Treasury to anticipate the information you will need.
  • Further, the CARES Act requires that applicants must make a “good faith certification” of the following:
    • That the uncertainty of current economic conditions makes the loan necessary to support ongoing operations;
    • Funds will be used to retain workers, maintain payroll, or make mortgage, rental, or utility payments; and,
    • There is no pending duplicate loan under the PPP and the applicant did not already receive proceeds under the PPP.

It is important to keep in mind that these are guiding principles of the Payroll Protection Program. The Government has 30 days from the enactment of the CARE Act to issue guidance and regulations to implement this program.

PLEASE NOTE: Grewal Law PLLC will be hosting a Facebook live event with a CPA on Monday, April 6, 2020 at 3:00 p.m. to answer any questions you may have.