CARES Act & Paycheck Protection Program 

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is a stimulus bill aimed at providing relief to employers and individuals affected by the coronavirus pandemic (COVID-19).  Among the gamut of loan options under the new stimulus bill, the Paycheck Protection Program (PPP) is a loan program for small businesses and is administered by the Small Business Administration (SBA).  It will fully guarantee loans provided by approved lenders to eligible entities. Forgiveness of these loans is also available under certain circumstances. 

In the midst of this pandemic and uncertainty, the nation’s small businesses are especially vulnerable.  The federal government recognizes this threat and wants to alleviate their pressures in order to save as many businesses as possible.  Small business owners should work with an experienced CPA and tax attorney in order to carefully assess available assistance programs, determine the interplay of the regulations, and choose the best option for their particular circumstances.  Our team at Dallo Law Group is available to help.  

Eligibility & Authorizations for Certain Small Businesses 

The newly implemented PPP provides that any business concern, non-profit organization, veterans organization, or tribal business shall be eligible to receive a covered loan during the period of February 15 through June 30, 2020. The general requirements are that the business does not have more than 500 employees, and must spend 75% of the loan proceeds on payroll. 

The PPP provides federally-guaranteed loans up to a maximum amount of $10 million to eligible businesses, which can be partially forgivable and encourage businesses to retain employees through the COVID-19 crisis by assisting in the payment of certain operational costs.  Loan amounts can be calculated to about ten weeks of payroll costs (including healthcare costs such as insurance premiums, paid sick, medical or family leave, state/local employer taxes, etc.) and are determined based on 250% of average monthly payroll costs, taking into consideration average wages paid during a one-year period preceding the loan and up to a limit of $10 million. Some leniency is given for seasonal employers and entities not in business in the prior year.

Besides aid with meeting payroll, proceeds from the PPP loans can be used for:

• Insurance premiums and group health care benefits;
• Employee compensation;
• Payment of interest on mortgage obligations;
• Rent;
• Utilities; and
• Interest on debt.

The loan can be forgiven if used for the above purposes. Loans under the PPP program also do not require any personal guarantee or collateral from the borrower.  Specifically, the CARES Act will forgive the portion of the loan used for covered payroll costs, interest on mortgage obligations, rent, and utilities during the 8-week period following loan origination, as long as salaries and wages are not reduced by more than 25%.  

To determine the amount that will be forgiven, the average number of full-time equivalent employees per month will be compared to either the prior-year period or January through February of 2020. An alternate calculation may apply for seasonal employers.  A similar comparison will apply to wage levels.

Moving Forward

Small businesses can apply for a PPP loan through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program, and lenders have begun processing loan applications as recently as April 3, 2020.  

In addition, the SBA will direct lenders to defer all payments (principal, interest and fees) otherwise due under a Paycheck Protection loan for a minimum of 6 months and a maximum of 12 months.  These are great tools to assist a distressed business that wants to keep afloat during this uncertain and chaotic time.  

For further assistance in navigating these new business favorable programs, our professionals at Dallo Law Group are here and available for you.  The CARES Act and the various sections under it can have the ability to become a lifeline for you or your business. Do not pass up these loans and other assistance programs created by federal, state, and local governments for small businesses impacted by the COVID-19.  We can be contacted at 619-795-8000.