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This article was updated on March 31, 2020. Updates to this article will be made as new information becomes available.
Schneider Downs continues to track the evolving landscape of Federal Financial Assistance Programs offered due to the disruption of the coronavirus (“COVID-19”). The CARES Act Paycheck Protection Program (“PPP”) under the Small Business Act is one of the key parts of the Federal government’s relief efforts. This program is summarized below:
Section 1102 of the CARES Act, entitled Paycheck Protection Program (“PPP”) has allocated $349 billion to provide 100% federally guaranteed loans to small businesses to assist in keeping workers employed during the pandemic.
The eligibility requirements for certain small businesses and organizations to qualify for the PPP are as follows:
The 500 employee (or SBA industry size standard) threshold includes all employees whether they be full-time, part-time, or any other status.
Additionally, the determination of a business concern’s number of employees is subject to the affiliation rules under Section 121.0103, Title 13, Code of Federal Regulations. In general, affiliation applies when a business concern (including nonprofit organizations or veterans organizations) has control or has the power to control more than one business. In determining a concern’s number of employees, the SBA includes the concern’s number of employees and the number of employees of all of its domestic and foreign affiliates.
However, the CARES Act allows for a waiver of these affiliation rules for:
Loan amounts can be up to 2.5x a borrower’s average monthly payroll costs (based on trailing twelve months), not to exceed $10 million. Payroll costs are defined to include:
For Sole Proprietors, Independent Contractors, and Self-Employed Individuals, payroll costs include any compensation to or income that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in one year, as pro-rated for the covered period.
Payroll costs exclude:
Lenders will ask for a good faith certification that:
We are waiting for guidance on what the specific information required for the loan application will be.
A borrower is eligible for loan forgiveness equal to the amount the borrower spent during the eight-week period starting on the date of loan origination on the following items (not to exceed the loan’s principal):
However, loan forgiveness can be reduced if there is a reduction in: (1) the number of employees; OR (2) employee wages in excess of 25% since the goal of the Act is to provide “payroll protection”. Reductions in employment or wages that occur during the period beginning on February 15, 2020, and ending 30 days after enactment of the CARES Act (as compared to February 15, 2020) shall not reduce the amount of loan forgiveness IF by June 30, 2020 the borrower eliminates the reduction in employees or reduction in wages.
Please visit our Coronavirus Resource Center for related content.