CORONAVIRUS EMERGENCY LOANS
The Coronavirus Aid, Relief, and Economic Security or the CARES Act was signed on March 27th, 2020. One of the largest section is the Paycheck Protection Program which sers aside $350 billion for small businesses to continue keeping workers employed. The Paycheck Protection Program will provide 100% federally guaranteed loans. These loans can be forgiven if small businesses keep their payrolls or reinstate them afterwards. The U.S. Chamber of Commerce has issued guidelines to help small businesses or self-employed individuals prepare for filling a loan.
Who Is Eligible?
- Small businesses with fewer than 500 employees.
- Small businesses that otherwise meet the SBA’s size standard.
- A 501(c)(3) with fewer than 500 employees.
- An individual who operates as a sole proprietor.
- An individual who operates as an independent contractor.
- An individual who is self-employed who regularly carries on any
trade or business.
- A Tribal business concern that meets the SBA size standard.
- A 501(c)(19) Veterans Organization that meets the SBA size standard.
With the addition of some special rules, you may also be eligible if you are in the accommodation and food services sector (NAICS 72) or you are operating as a franchise or receive financial assistance from an approved Small Business Investment Company.
What are lenders going to be looking for?
lenders will be considering whether your business was in operation before February 15, 2020. They will also be looking to see that the business had employees for whom they paid salaries and payroll taxes or paid independent contractors. Lenders will also need a good faith certificate from you. The good faith certificate will include:
- A statement about the uncertainty of current economic conditions that make the loan request necessary to support ongoing operations.
- A statement about how the borrower will use the loan proceeds to retain workers and maintain payroll or make the mortgage, lease, and utility payments.
- A statement about how the borrower does not have an application pending for a loan duplicative of the purpose and amounts applied for here.
How Much can be borrowed?
Paycheck Protection Program loans can be up to two-and-a-half times the borrower’s average monthly payroll costs, without exceeding $10 million.
How would You calculate Payroll costs?
The sum of payments of any compensation with respect to employees that is a:
- Salary, wage, commission, or similar compensation.
- Payment of cash tip or equivalent.
- Payment for vacation, parental, family, medical, or sick leave.
- Allowance for dismissal or separation.
- Payment required for the provisions of group health care benefits, including insurance premiums.
- Payment of any retirement benefit.
- Payment of State or local tax assessed on the compensation of the employee.
sole Proprietors, Independent Contractors, and Self-Employed Individuals
The sum of payments of any compensation to or income of a sole proprietor or independent contractor 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.
Excluded Payroll Costs
- Compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the period February 15, to June 30, 2020.
- Any compensation of an employee whose principal place of residence is outside of the United States.
- Payroll taxes, railroad retirement taxes, and income taxes.
- Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116– 5 127); or qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act
Will tHE lOAN bE fORGIVEN?
A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 8-week period beginning on the date of the origination of the loan:
- Payroll costs (using the same definition of payroll costs used to determine loan eligibility)
- Interest on the mortgage obligation incurred in the ordinary course of business
- Rent on a leasing agreement
- Payments on utilities (electricity, gas, water, transportation, telephone, or internet)
- For borrowers with tipped employees, additional wages paid to those employees
Loan forgiveness cannot exceed the principal.
What dO I nEED tO fILL oUT?
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