All businesses with less than 500 employees are eligible for a Paycheck Protection Program loan through the Small Business Administration (SBA). Most likely, the employee limit will be based on your average monthly employee count over the last 12 months. There are some exceptions for larger companies if the SBA guidelines still consider the business to be “small” based on revenue or employee count in their industry but in general, the 500-person limit will apply to most.
· Nonprofits and individuals who operate under a sole proprietorship or as an independent contractor are also eligible.
· If your business meets the employee test, Congress simplified the remaining SBA eligibility rules and basically if you were operational on 2/15/2020, had employees or independent contractors and your business was substantially impacted by COVID-19, you are eligible. The last guideline is a subjective standard. All other usual SBA requirements including detailed underwriting, borrower fees and personal guarantees are waived.
· The maximum amount of your loan is equal to 2.5 times your average monthly payroll costs for the trailing 12 months prior to receiving the loan (or $10 million, whichever is less). Payroll costs include wages, commissions, tips, paid leave, healthcare payments and retirement benefit payments. However, if you have employees earning in excess of $100,000/year, only the first $100,000 is considered for these workers.
· The loan proceeds can be used to maintain payroll, make rent payments, cover the interest on mortgage payments or for utility payments.
· For any amounts expended on the purposes in the bullet above during an 8 week period following loan issuance, the government will forgive a comparable amount of the original loan. This forgiveness is not taxable. The loan forgiveness may be reduced by the following:
* The business employee count during the 8-week period following loan issuance is less than the employee count during the period 2/15/19-6/30/19 or 1/1/20-2/29/20 (employer’s choice).
* The business reduces the salary of anyone (except a high earner making over $100,000) by greater than 25% during the 8 week period following loan issuance.
* These two rules will not apply to reduce principal forgiveness if the employee count or original salary is restored by 6/30/20
· I’ve focused the points above on the loan forgiveness features. However, for businesses who won’t spend the full loan proceeds during the 8 weeks following loan issuance, there are favorable rules for the ongoing, unforgiven loan (i.e. rate, term, etc.).
· As mentioned in my opening, the process for loan application has not been released but if you’re interested, I recommend you start gathering historical payroll reports, up to three years of business income tax returns and three years of personal tax returns for owners (owning 20% of the company).
The Unemployed
· The CARES Act extends unemployment insurance benefits to those not traditionally eligible including the self-employed and independent contractors.
· The extension excludes those able to telework (work from home) or receiving paid leave.
· At a high level, those receiving these enhanced benefits will receive the amount ordinarily paid by their home state (variable based on past earnings) and a flat $600/week from the Federal government through 7/31/2020. For many low/medium wage earners, these benefits will be as much or even greater than the amounts earned when employed.
· The normal one week waiting period for benefits is waived.
· The benefit period may be extended to a total of 39 weeks for the period 1/27/20-12/31/20 but the additional $600/week benefit from the Federal government only covers up to four months and ends on 7/31/20.
· Although the details for proving this continue to evolve, eligibility also depends on the need for a benefit attributable to a COVID-19 related circumstance.
This was compiled by Russ Wood, Junior Vice Commander at American Legion Post 29 in Marietta
