On March 27, 2020 Congress passed and the President signed into law the CARES Act and emergency stimulus package, providing financial relief to individuals and businesses effected by the ongoing COVID-19 pandemic. If you are a small business owner, sole proprietor, or even if you are paid as an independent contractor, the law may provide relief for you.
The SBA Paycheck Protection Loan Program
The SBA Paycheck Protection Loan Program (7(a) Program) is available to small business for the purpose of paying payroll costs, utilities, rents and certain existing debt service payments. The loan is 100% guaranteed by the US Government but will be made through local lenders approved by the SBA. Contact your bank and ask if they are a participating lender.
- The loan may not be greater than $10 million.
- Loan is calculated by taking average monthly payroll over last 12 months and multiplied by 2.5.
- Compensation paid to ay individual in excess of an annual salary of $100,000 is excluded.
How the proceeds may be used:
- Payroll costs including:
- Salary
- Wage
- Commission (subject to the $100,000 limitation)
- Tips
- Vacation, parental, family, medical or sick leave.
- Allowance for separation or dismissal
- Group healthcare benefits
- Retirement benefits
- State and local taxes
- Payment of mortgage interest (not principal)
- Rent payments
- Utility payments
- Interest (not principal) on debt obligations incurred before February 15, 2020.
- Other allowable uses under 7(a) Program loans.
Key terms of the loan:
- Maximum interest rate of 4%.
- Borrower and lender fees are waived.
- Cap on fees for agents that assist borrowers in loan preparation.
- Payments of principal and interest will be deferred for six months (may be delayed for up to one year)
- Maximum repayment term will be 10 years from the date borrower applied for the loan.
- CONDITIONAL LOAN FORGIVENESS
Borrowers may apply to their lenders for loan forgiveness in equal amounts from the loan used by borrower during the eight-week paid beginning on the date the loan is initially funded and used for the following:
- Payroll Costs
- Mortgage interest payments,
- Rent payments
- Utility payments
The amount forgiven cannot exceed the principal amount of the loan. Forgiveness may be adjusted for reduction in employees during the eight-week period following initial funding of the loan compared the average number of employees per month during the period of February 15, 2019 to June 30, 2019 or January 1, 2020 to February 29, 2020. Forgiveness may also be adjusted by the amount of reduction in total salary or total wages for employees who earned less that $100,000.00 in wages or salary during 2019 during the eight-week period following the initial funding of the loan, if the reduction is in excess of 25%.
Small businesses that rehire employees they released between February 15, 2020 and April 16, 2020 will not be penalized for having reduced payroll if they reverse the employee reduction by June 30, 2020. All amounts forgiven will be excluded from income for tax purposes. Participation may disqualify employer from tax deferral benefits under the CARES Act.
If you believe you qualify and need assistance, Faro & Crowder, P.A. is here to help. We have spent the last 10 years helping individuals and small business owners in Central Florida facing economic hardship. We can also help determine if a SBA emergency loan may be appropriate for your situation, as the CARES Act also reduced or waived many of the qualification requirements, like personal guarantees and collateral requirements. If the assistance available through the CARES Act and the SBA are not enough to get your business through the pandemic, we can help with your options under the Bankruptcy Code, including reorganization to try to preserve your business and assets, and liquidation if you would prefer a fresh start. Please contact us today for a free phone consultation to go over your options.
The information on this blog or any blog is not intended as, and should not be taken as, legal advice.