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Coronavirus Aid, Relief and Economic Security (CARES) Act

NOTE: This bill has been passed by Congress and Trump has indicated that he will sign it immediately. Due to the urgent nature of this fiscal help, we are getting this information to you so you are prepared to apply swiftly if necessary.

The heart of the CARES act is an expansion of the SBA 7(a) loan program, which the act calls a “Payroll Protection” loan, covering February 15, 2020 through June 30, 2020 – with possible forgiveness of the debt through certain uses like payroll. Pearce, Bevill, Leesburg, Moore, P.C. recommends that you prepare to apply for a CARES loan with your banking institution as soon as final passage of the bill occurs. The ACT allocates $349 billion dollars for the CARES program, and will likely need a second bill passed when that funding runs out. Therefore, it’s important to act timely in filing your application.

Who qualifies for a CARES “Payroll Protection” SBA loan?

  • Businesses, non-profits or veteran organizations that employ 500 or fewer employees (per physical location for Accommodations and Food Services Industries)
  • Sole-proprietors, independent contractors, and self-employed individuals who would be eligible for Emergency Sick Pay under the Families First Coronavirus Response Act (FFCRA)

How much can I borrow?

  • 2.5 times average monthly payroll costs based upon the year immediately preceding the date of the loan**, plus any outstanding loan amount under 7(b)(2) made on or after January 31, 2020 and before or on the date covered loans are made available to be refinanced under the covered loan
    (or)
  • $10 million

    ** Special computations available for seasonal employers and businesses not in business for full year

What can I use the money for?

  • Payroll costs
  • Continuation of group health benefits during periods of leave
  • The interest portion of mortgage payments
  • Rent
  • Utilities
  • Interest on other obligations incurred before February 15, 2020

What are the payroll considerations?

  • Salary, wage, commissions or similar compensation payments (to the extent that it would not exceed an annualized amount of $100,000 to the individual employee) for employees whose primary residence is within the U.S.
  • Payments of cash tips or equivalent
  • Paid vacation, parental, family, medical or sick leave (other than payments for which credit is allowed under FFCRA)
  • Allowance for dismissal or separation
  • Payments for provision of group health benefits, including premiums, and retirement benefits
  • State and local taxes assessed on compensation of employees

What portion of the loan is forgivable?

  • Sum of the payments made during the period for: payroll costs, interest on covered mortgage, covered rent and covered utilities
  • The forgivable amount is reduced for decreases in full-time equivalent (FTE) employees
  • It is also reduced for decreases of more than 25% in compensation to employees making less than $100,000 on annualized basis
  • Reductions in FTE’s or compensation occurring between February 15, 2020 and 30 days after enactment of the Act are not taken into consideration if restored by June 30, 2020

What is the term of the loan?

  • 10 years

Where can I apply for the SBA Payroll Protection loan?

  • Banks, credit unions, and additional lenders as designated by the Treasury Department will process, close, disperse, and service the loans
  • Treasury Secretary Steven Mnuchin said the department plans to issue new regulations that will make it possible for almost all FDIC-insured banks to make SBA loans.