Paycheck Protection Loans

Mar 30, 2020Business, Business Consulting, Covid-19

Small businesses may apply for a forgivable loan under the CARES Act. The funding from the federal government for these loans will be limited. Businesses are encouraged to apply for this loan as soon as applications are available, which may be as soon as this week. This loan is administered through normal banking channels. Please contact your banker to apply for the loan.

In order to help you determine the amount of loan you are eligible for, we created a Paycheck Protection Loan Estimator so you will be ready as soon as the applications are available.

Details of the loan

Businesses with fewer than 500 employees, including sole proprietors and those with self-employment income, are eligible to apply for a forgivable loan that is fully guaranteed by the federal government through December 31, 2020 and 85% guaranteed after that date. The maximum term of the loan is 10 years with a maximum rate of 4%. All payments on the loan are deferred for a minimum of 6 months and a maximum of 12 months. There are no fees to the borrower for this loan.

Eligible businesses can apply for a loan that is up to 2.5 times their average monthly payroll for the rolling 12 months ending on the date that the loan was made. The maximum amount of the loan is $10 million.

The amount to be considered when computing average monthly payroll excludes certain items and includes others.

In order to be eligible the borrower needs to certify that “the uncertainty of current economic conditions makes necessary the loan request to support ongoing operations”.

Payroll does not include the following:

  • Payroll taxes.
  • Wages to any individual that are in excess of $100,000
  • Wages that are reimbursed under the Families First Coronavirus Relief Act
  •  Wages paid to individuals who are not residents of the United States.

Payroll does include the following:

  • Wages, commissions, salary to employees or independent contractors.
  • Payment for vacation or sick leave, except as related to Families First Coronavirus Relief Act.
  • Health insurance costs.
  • Payment of retirement benefits (401(k) match, SIMPLE match, etc.).

Most importantly, the loan taken under this provision will be forgiven to the extent that it is used to pay certain expenses in the 8-week period immediately following the date of the loan. The loan forgiveness related to this loan is tax-free.

The following expenses are eligible for loan forgiveness:

  • Payroll Costs (the same costs as included above)
  • Rent
  • Mortgage Interest
  • Certain Utility Payments

The amount of loan forgiveness is limited by any reduction in workforce or reduction in pay for employees making less than $100,000. The percentage of reduction is based on the average FTEs per month from 2/15/20 to 6/30/20 as compared to the average FTEs per month in the same period for 2019 or the average FTEs per month from 1/1/2020-2/29/2020. This percentage reduction does not apply if the employer eliminates the reduction in FTEs by June 30, 2020.

Do you have questions?

Check out our COVID-19 Resource Center to learn about tax implications, recent legislations and much more!

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