The CARES Act ---- Update

There are many provisions in the newly passed legislation to help businesses stay afloat and keep their employees on payroll.  This e-blast is going to focus on the Paycheck Protection Program (PPP) that has been established with $349 billion in funds to provide loans up to 10 million to qualifying small businesses.

Paycheck Protection Program (PPP)

The Small Business Administration (SBA) loans will be handled by Commercial Banks and applications will be taken as soon as April 3, 2020. It is recommended that businesses apply immediately since these funds will run out quickly.

In order to qualify, the business needs to be impacted by COVID-19 and the loan is necessary due to the uncertainty of current economic conditions. The loan proceeds are used for the designated purposes such as paying payroll, group health benefits, rent, utility payments, etc. Lastly, the business is not allowed to receive funding from another SBA loan for the same purpose such as covering payroll, group health benefits, etc.

This loan does not require any personal guarantees, the loan is not secured, and the SBA loan fees are being waived.

There is a loan forgiveness program attached to these loans. The application process for it has not been implemented. The idea is that the loan may be fully forgiven if the funds are used for payroll, rent, group health insurance, utilities and mortgage interest. The percentage of the funds that must be used for the above stated categories is 75% in order for the loan to qualify to be forgiven. The employer is also required to keep its employees at the current salary without any cuts. Once employees are laid off or salaries are cut, the amount of the loan that is forgiven will be prorated. One of the key highlights is that the loan forgiveness is not taxable.

Should the loan not be forgiven, then the payments are deferred for 6 months and the loan will have a 2-year term. The interest rate charged will not be in excess of 4%.

The loan amount is calculated by taking the average monthly payroll and multiplying it by 2.5 times.

Payroll is calculated by taking the following items into consideration.

·    Up to $100,000 of compensation per employee during the year including owner compensation 

·      Payments to independent contractors (issued a 1099-Misc) as long as they are based within the United States

Please reach out to your business bank as soon as possible and begin the application if you think that you qualify based on the information provided.

Square Forte Consulting will be available to guide you through the process and can provide any additional information you may need.

Please do not hesitate to reach out, stay healthy and safe.

Hubert Mende
hubert@squareforte.com

323-577-4612