Paycheck Protection Program and Loan Forgiveness
The Paycheck Protection Program within the Coronavirus Aid, Relief and Economic Security (CARES) Act provides up to $349 billion to small businesses by providing cash-flow assistance to employers who maintain their payroll during this emergency and help workers remain employed. If all employees are kept on payroll for an eight-week period after the loan proceeds are received, the Small Business Administration (SBA) will forgive the principal portion of the loan used for allowable expenses such as payroll, rent and utilities.
Who Is Eligible to Participate in the Paycheck Protection Program?
Businesses with less than 500 employees, that were operational on February 15, 2020 and had employees for whom it paid salaries and payroll taxes are eligible for the Payment Protection Program created under the CARES Act. This includes small businesses and eligible nonprofit organizations, Veterans organizations, and Tribal businesses, as well as individuals who are self-employed or are independent contractors who have suffered economic hardship as a result of the coronavirus pandemic.
What is the Maximum Loan Amount?
The maximum loan amount will be 2.5 times (250%) of the employer’s average total monthly payroll costs, based on the one-year period before the loan is made, up to a maximum of $10 million. Payroll costs are defined as the sum of all payments for compensation including salary, wage, tips, paid time off, severance, and healthcare benefits (including premiums). Eligible compensation does not include the compensation of an individual employee with an annual salary in excess of $100,000, taxes imposed or withheld during the covered period (February 15, 2020 – June 30, 2020), compensation to employees with a principal place of residence outside of the US, or wages paid for sick or family leave under the Families First Coronavirus Response Act.
What are the Terms of the Loan?
During the covered period, no collateral or personal guarantee for the loan will be required. The bill allows for complete deferment of the loan payments for at least six months and not more than a year. A portion of the loan may be forgiven completely if employers maintain their payroll during the covered period. See additional details below on this. Any loan amounts not forgiven at the end of one year is carried forward as an ongoing loan with terms of a max of 2 years and 1% interest. There will be no prepayment penalty for any payment made on the covered loan.
What Can the Loan Proceeds be Used For?
The loans can be used for payroll costs, costs related to group healthcare benefits, employee salaries, interest on mortgage payments, rent (under a lease agreement), utilities and interest on any other debt obligations.
How do I apply for a loan through the Paycheck Protection Program?
The Small Business Administration (SBA) will administer loans through qualified lenders such as FDIC insured banks and credit unions. We recommend that you discuss with your local bank how the application process with work as they are now accepting applications. Loans are processed on a first-come, first-served basis until the funds are exhausted.
What are the Borrower Requirements?
An eligible business applying for a loan shall make a good faith certification that the uncertainty of current economic conditions makes necessary the loan request to support ongoing operations, acknowledge the funds will be used to retain workers and make mortgage, lease and utility payments, and that the business hasn’t already received funds under another SBA lending program.
The requirement that a small business is unable to obtain credit elsewhere shall not apply to this loan.
What Portion of the Loan Can be Forgiven?
The borrow is eligible for loan forgiveness equal to the amount spent by the borrower during an 8 week period after the origination date of the loan on payroll costs, interest payments on mortgages, payments of rent on any lease and payments on any utility. Amounts forgiven may not exceed the principal amount of the loan. Eligible payroll costs do not include compensation above $100,000 in wages. The amount forgiven will be reduced proportionally by any reduction in employees retained compared to prior year and reduced by the reduction in pay of any employee beyond 25 percent of their prior year compensation. To encourage employers to rehire any employees who have already been laid off due to COVID-19, borrowers that re-hire employees previously laid off by June 30, 2020 will not be penalized for having a reduced payroll at the beginning of the period. Borrowers will verify through documentation to lenders their payments during the period.
Businesses that take advantage of the Paycheck Protection Program will not be eligible for the employee retention credit or the payroll tax deferral also under the CARES Act.
Please reach out to your contact at H&M for more information on the Paycheck Protection Program. We also encourage you to reach out to your local bank contact and/or review the sample application form on the SBA website at https://www.sba.gov/document/sba-form–paycheck-protection-program-borrower-application-form.