The CARES Act promulgates a new loan program through the Small Business Act, the Paycheck Protection Program (the “”Program“), to provide eligible borrowers with loans to help cover costs related to the COVID-19 emergency. Under the program, borrowers are eligible for loan forgiveness up to the principal amount of the loan.
How do I get a discount on my loan?
Borrowers are entitled to a loan forgiveness equal to the amount of fees incurred and paid during the 8 week period beginning on the date the loan was granted for:
- Salary costs;
- Interest payments on mortgage bonds contracted before February 15, 2020;
- Payment of rental obligations under a lease in force before February 15, 2020; and
- Utility payments for electricity, gas, water, transportation, telephone or internet if the service started before February 15, 2020.
To qualify for loan forgiveness, the borrower must submit an application to the lender who manages the loan with the appropriate verification documents, certification by an authorized representative, and other documents required by the SBA. Loan cancellation will not be granted in the absence of such documentation. Lenders must make a decision on loan cancellation within 60 days of receiving the borrower’s request.
Borrowers with tipped employees may receive a rebate for additional wages paid to those employees.
What are the salary costs?
Personnel costs include:
- the sum of the payments of any remuneration relating to employees which is:
- salary, wages, commission or similar remuneration;
- payment of a tip in cash or equivalent;
- payment of vacation, parental, family, medical or sick leave;
- severance or severance pay;
- payment required for group health care benefits, including insurance premiums;
- the payment of any retirement benefit; or
- payment of state or local tax assessed on employee compensation; and
- the sum of the payments of any remuneration or income of a sole proprietor or independent contractor which is salary, commission, income, net income from self-employment or similar remuneration and which is of a amount not exceeding $ 100,000 in 1 year, prorated over the period covered.
Personnel costs Do not include:
- compensation of an individual employee in excess of an annual salary of $ 100,000, prorated over the period covered;
- taxes imposed or withheld under Chapter 21, 22 or 24 of the Internal Revenue Code of 1986 during the period covered;
- any compensation for an employee whose primary place of residence is outside the United States;
- qualified sick leave wages for which credit is granted under Section 7001 of the Families First Coronavirus Response Act; or
- eligible family leave wages for which credit is granted under Section 7003 of the Families First Coronavirus Response Act.
Are there any special considerations or limitations I should be aware of?
To maximize loan cancellation, you need to consider the following:
- The loan cancellation will be proportionately reduced by any reduction in the average number of full-time equivalent employees per month employed during the period covered compared to a prior period.
- The loan cancellation will be reduced by the amount of any reduction in the wages or total wages of certain employees that exceeds 25% of the employee’s wages or total wages in the most recent full quarter.
- Loan cancellation reductions resulting from certain employment and / or salary reductions may be avoided if the borrower has eliminated the reduction by June 30, 2020.
- Maintain documentation verifying the number of full-time equivalent employees on payroll and rate of pay, including federal and state returns, and verifying payments on covered costs.
- Submit the documentation to the lender in a timely manner.
What happens to loan amounts that are not canceled?
Any remaining balance will be carried over as a loan under the program with a maximum maturity of 10 years from the date the borrower requests a loan forgiveness. Interest rates on loans granted under the Program cannot exceed 4%.
Are there any federal tax consequences?
Amounts remitted are excluded from gross income for federal income tax purposes.