On March 28, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) was signed into law. CARES provides important economic relief to businesses throughout the U.S. This document covers frequently asked questions and the applicability of CARES to Weaver, Bennett & Bland’s business clients. If you have specific questions about the applicability of these provisions to your business, call us at 704- 844-1400 or e-mail us at mvillmer@wbbatty.com. CARES includes the following general provisions that you should be aware of:
PAYCHECK PROTECTION PROGRAM – SMALL BUSINESS LOANS
Overview: The Paycheck Protection Program allocates $350 Billion to small businesses, to help them keep their workers employed during the COVID-19 crisis. The program gives businesses 100% federally guaranteed loans that, under circumstances outlined below, may be forgiven if borrowers maintain their payrolls during the crisis, or restore their payrolls after the crisis.
Eligibility for Paycheck Protection Program Loans
Your business is likely eligible for a CARES loan if you are:
A small business or 501(c)(3) with fewer than 500 employees
A sole proprietor who regularly carries on a business
An independent contractor, or someone in the “gig economy”
A food sector business with fewer than 500 employees (on a per-physical location basis)
A small business that otherwise meets the SBA’s size standards
The “fewer than 500 employees” standard includes all employees—full-time, part-time, and independent contractors.
What Lenders Want to See in Your Loan Application: When applying for a CARES loan, lenders will consider whether you operated a business before February 15, 2020, and whether you had employees who were paid through regular payroll or as independent contractors. Lenders will also ask that you certify that the following is true, as a part of your application:
The uncertainty of current economic conditions makes the loan request necessary to support your ongoing operations.
You will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments.
You do not have an application pending for a loan to be used by you for the same purpose and amount.
From February 15, 2020 to December 31, 2020, you have not received a loan that was used by you for the same purpose and amount; however, if you received an emergency COVID-19 bridge loan, you may be able to roll that loan into the CARES loan.
Importantly, lenders will not consider the following, when evaluating your application:
That you sought credit outside the CARES loan process, and you were denied.
That you cannot sign a personal guaranty, or that you have no assets to make a personal guaranty effective (a personal guaranty is not required).
That you lack collateral for the loan (collateral is not required).
How Much You Can Borrow
For the average small business, you can borrow up to 2.5 times your average monthly payroll costs, capped at $10 million. The calculation of average monthly payroll cost is performed as follows:
Included Payroll Costs are payments made to employees that include:
Salary, wages, commissions, or regular bonuses
Payment of cash tips, or equivalents
Payment of vacation, family, medical, or sick leave
Payments for employee group healthcare premiums
Payment of retirement benefits
Payment of state and local taxes assessed on employee compensation
Excluded Payroll Costs are payments made to employees that include:
Compensation to any single employee that exceeds $100,000 in annual salary, prorated to the period of February 15, 2020 to June 30, 2020
Payroll taxes and income taxes
Any compensation to an employee whose principal place of business is outside the U.S.
Qualified sick leave or family leave under the Families First Coronavirus Response Act
For sole proprietors, independent contractors, and self-employed people, Average Monthly Payroll Costs are calculated by adding up all income received in operation of the business, not to exceed $100,000, prorated to the period of February 15, 2020 to June 30, 2020.
For businesses with seasonal operations, the maximum loan amount is 2.5 times the Average Total Payroll Costs for the 12-week period beginning February 15, 2019 or March 1, 2019 (you decide which you prefer) and ending on June 30, 2019.
How to Receive Loan Forgiveness
If you receive a CARES loan, you will be eligible for loan forgiveness in an amount that equals the sum you spent on the following items during the 8-week period beginning on the date the CARES loan was originated:
Payroll costs (using the same definition of payroll costs used to determine loan eligibility, above)
Interest on mortgage payments incurred in the ordinary course of business
Rent paid on a commercial or workplace lease
Utility Payments (electricity, gas, water, transportation, telephone, or internet)
For borrowers with employees who receive tips, additional wages paid to those employees
The amount forgiven cannot exceed the principal of the loan.
However, remember that the purpose of the CARES loan is primarily to ensure you keep employees working. Therefore, the loan forgiveness amount can be reduced if you lay off employees or reduce payroll by 25% or more. The loan forgiveness reduction operates as follows:
If you reduce the total number of employees you have, your CARES loan forgiveness will be reduced using the following formula:
Option #1: Average number of full-time employees per month from February 15, 2019 to June 30, 2019.
Option #2: Average number of full-time employees per month from January 1, 2020 to February 29, 2020.
Option #3 (Seasonal Employers Only): Average number of full-time employees per month from February 15, 2019 to June 30, 2019.
If you reduce salaries or compensation for your existing employees, your CARES loan forgiveness will be reduced using the following formula:
If you laid off employees or reduced wages between February 15, 2020 and April 27, 2020, these actions will not count towards reducing your CARES loan forgiveness, if you eliminate the reduction in employees or wages by June 30, 2020.
If you have any questions, do not hesitate to contact us at 704-844-1400 or e-mail us at mvillmer@wbbatty.com.
