Last night the Senate passed a historic piece of legislation called the CARES Act to bring meaningful relief to all sectors of the economy and support to the healthcare system. A link to the 880 page final bill can be found at the bottom of this post, as well as a great Executive Summary produced by the National Restaurant Association (the bill applies to all small businesses in America, but this happens to be a good summary).
The most important provisions of the bill for the economic security of small businesses are the Payroll Protection Program Loans (PPPL) and the forgiveness provisions for those loans. In a nutshell, there will be loans available from your bank, through the SBA 7(a) program, to help make it through the crisis. You should expect it to take at least until May to get these loans; if the banks are able to get them faster, that will be amazing, but things take a lot of time.
In addition to the notes on the forwarded NRA summary and the actual language of the law, I wanted to share some of my colloquial running notes on the loan sections to help you start your planning. We will be holding a lot of conversations to go through this planning.
PAYROLL PROTECTION PROGRAM LOANS (Section 1102)
1. Who Is Eligible?
Every small business is an 'Impacted Borrower.' Any small business with less than 500 employees per physical location, including self-employed and non-profits. The loan criteria will be incredibly simple: the company has to have been in business on 2/15/20 and paying employees.
2. How Much?
2.5 x the average monthly payroll during the 1 year period before the date on which the loan is made. Wages over $100,000 per person and FFCRA reimbursable wages are both excluded from the average payroll calculation.
3. What Can the Money be Used For?
Payroll costs, including benefits, interest on mortgages, rent, utilities, and interest on debt incurred prior to 2/15/20.
4. What Are the Terms?
Not personally guaranteed. No collateral. No need not to have credit elsewhere. Anything not forgiven will be at <4% interest, up to 10 year terms. No payments for 6 months.
LOAN FORGIVENESS (Section 1106)
1. How much? - 8 Weeks of payroll costs, plus occupancy costs and interest expenses, starting from the date the loan is taken.
2. Reduction? - Loan forgiveness will be be reduced:
proportionately by the amount your average number of FTE (30 hour) employees from 2/15-6/30/20 are less than 2/15-6/30/19 or 1/1/20-2/29/20; and
reduced directly by any reduction in pay of employees (making less than $100,000) beyond 25% of their most recent full quarter's compensation
for employers who have laid staff off or reduced salaries, if you have restored the number of FTE employees or restored their salaries, by June 30, you will not be subject to loan forgiveness reduction.
As always, our team is working around the clock to get you access to everything you need. We are proud to help get you through the crisis and keep all of you on your feet - look for more communication soon.
Matt Hetrick, CPA
President and Owner of CPA Eats & Harmony Group