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The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) & the Paycheck Protection Program



On March 27, 2020, President Trump signed into law H.R. 748, also known as the CARES Act. One of the important provisions of this new law is the Paycheck Protection Program (“PPP”) which provides forgivable loans to assist with the short-term payroll requirements of small businesses. To be eligible for this forgivable loan, the small business must have 500 employees or less.[1]Additionally, this loan is available to self-employed individuals, nonprofits, independent contractors, and veterans’ organizations.

The loan amount is limited to the lesser of: 2.5x the small business’ average calendar year 2019 monthly payroll or $10 million. If a small business is seasonal then the business can substitute average payroll numbers from February 15, 2019 until June 30, 2019. Eligible payroll costs include the following costs capped at $100,000 per employee:

· salary, wages, commissions, or tips

· state and local taxes assessed on compensation

· employee benefits including health care benefits; insurance premiums; retirement benefits; costs for vacation, medical, sick, and parental leave; and allowances for separation or dismissal

These loans are meant to be used:

· to pay for cover payroll costs and benefits

· interest on mortgage obligations incurred prior to February 15, 2020

· rent due under rental agreements signed prior to February 15, 2020

· utility services which began prior to February 15, 2020

These loans will only be forgivable if the small business utilizes the funds to pay payroll costs, mortgage interest, rent, and utilities within 8 weeks of receipt of the loan. However, the Treasury Department has issued guidance that if 25% or more of the loan is utilized to pay non-payroll expenses, then the entire amount may not be forgivable.

Additionally, if the small business does not maintain the staff and payroll, then the money will need to be repaid. Specifically, the money will need to be repaid if the small business:

· reduces full-time employees

· reduces payroll by more than 25% for any employee that made less than $100,000 annualized.

The loan will be a 2-year loan with a 1.00% fixed interest rate with all payments deferred for 6 months and will not require a personal guarantee or collateral. The small business can request forgiveness from the lender if it can provide the following documentation:

· the number of full-time equivalent employees and pay-rates

· payments for eligible expenses including mortgage, lease, utilities

PPP loans can be applied for through any of the 1,800 approved lenders throughout the country see: https://www.sba.gov/funding-programs/loans. Applications will open for small businesses on April 3, 2020 and April 10, 2020 for independent contractors and self-employed individuals.

The application can be found at the following link: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Application-3-30-2020-v3.pdf

Disclosure. Polaris Law Group provides this information for educational purposes only. It should not be construed or relied in as legal advice or to create a lawyer-client relationship. Readers should not act on this information without seeking advice from professional advisors.

[1] However, if the business falls into an industry that has employee-based size standards through the SBA there are different size restrictions. The industry standards can be found at the following website: https://www.sba.gov/document/support--table-size-standards.

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