I. Paycheck Protection Program (PPP): Forgivable Loan
Maximum New Loan Amount.
Generally, the maximum new loan amount is calculated as the lesser of 2.5x the average total monthly payment for payroll costs during a relevant period, or $10 million. (In calculating the average monthly payroll, you cannot count compensation over $100,000 per annum per employee.)
Note:
Payroll includes up to $100,000 of self-employment income.
Who Qualifies.
Under the CARES Act, any business, nonprofit, veterans organization or tribal business may qualify for a covered loan, if the business employs not more than the greater of (i) 500 employees or (ii) the size standard in number of employees established by the SBA for the industry in which the business operates (full-time, part-time, or other basis).
Who May Issue Loans.
Any lender currently authorized to issue SBA loans is authorized to issue covered loans. Additionally, the SBA and Treasury Secretary may approve additional lenders to provide covered loans. A current Loan Application (as of the date of this email) can be found
here.
Forgiven Amount.
The forgivable portion of your PPP loan is the amount you spend in the eight-week period after obtaining the loan on:
- Payroll (same definition of "payroll costs" in determining your loan amount - therefore, limited to pro-rated annualized salary of $100,000 per employee x 8 weeks, or $16,666 per employee).
- Covered mortgage interest (debt secured by real property before 2/15/20).
- Covered rent obligations (rent due on leases in force before 2/15/20).
- Covered utility payments (electricity, gas, water, transportation, telephone, or internet on service that began before February 15, 2020).
Specific Information.
There are certain representations and certifications that the applicant must make to qualify for this loan. For more detailed information regarding the PPP program, please click here.
Election. If you apply for the loan forgiveness program, you cannot defer your employer payroll taxes, and you may not be eligible to obtain an SBA disaster loan.
II. Employer Payroll Tax Deferral Program: No Loan Forgiveness
Under the CARES Act, businesses who qualify for PPP will likely qualify for this program. Employers are cautioned, however, that they must elect between the programs. In other words, you cannot get a loan under PPP and defer your payroll tax under this program. The Employer Payroll Tax Deferral Program allows employers to temporarily withhold and use certain funds from payroll taxes for working capital for their business with the following parameters:
- Employers can defer their share of social security tax (6.2%) on wages for the remainder of 2020 without incurring any interest or penalties.
- This includes self-employment taxes (but only the employer's share of the self- employment tax).
- Obligated to pay half of the deferred tax by 12/31/2021.
- Obligated to pay the other half of the deferred tax by 12/31/2022.
- If you receive loan forgiveness under the PPP noted above, you are not eligible to defer your employer payroll taxes.
As more information regarding the Employer Payroll Tax Deferral Program becomes available, we will update our webpage accordingly.
III. SBA Disaster Loan Highlights
Who Qualifies.
Under the guidance issued by the SBA, working capital loans may be issued to small businesses, small agricultural cooperatives, small businesses engaged in aquaculture, and most non-profit organizations.
Use of Loan.
Working capital loans may be used to pay fixed debts, payroll, accounts payable and other bills that cannot be paid as a result of COVID-19.
Application Requirements.
To qualify for a working capital loan, the SBA may require a current credit report, evidence of an ability to repay the loan, and collateral for all loans issued over $25,000. Typically, the SBA will seek real estate as a form of collateral, but other options may be available to a borrower. The application for an SBA Disaster Loan can be found here.
Loan Specifics.
The SBA will determine a repayment term, up to 30 years, depending on the borrower. The interest rate for non-profits starts at 2.75%, depending on qualifications, and the interest rate for all other borrowers starts at 3.75%, depending on qualifications. Loans may not be used to refinance other long-term debts, and borrowers must maintain appropriate insurance, typically designed to protect the collateral securing the loan.
Loan Cap.
The SBA is limited to issuing working capital loans at $2 million. In general, the borrower is limited to the actual amount of damages suffered as a result of COVID-19. However, the SBA may waive this provision if the business is a major source of employment.
Deadline. Application filing deadline is December 21, 2020.
For assistance with the CARES Act's provisions for small business loans, please email
David Fitzgibbons
or
Denis Fitzgibbonsor call our office at
(520) 426-3824.
Fitzgibbons Law Offices stands ready to assist with any of your legal needs during this public health crisis.
David Fitzgibbons
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Denis Fitzgibbons
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