This article was prepared based on the guidelines published by the US Chamber of Commerce.
1. What Is The CARES Act?
The Coronavirus Aid Relief and Security (CARES) Act is the new law that was enacted to provide $350 billion to keep small businesses and their workers employed during the Covid 19 pandemic. The new law provides 100% federally guaranteed loans to small business employers who maintain their workforce during this unique time. These loans will be forgiven if the employer maintains its workforce during this emergency or if the payroll is reestablished when the crisis concludes.
2. Who Is Eligible?
According to the US Chamber of Commerce:
- A small business with fewer than 500 employees
- A small business that otherwise meets the SBA’s size standard
- A 501(c)(3) with fewer than 500 employees
- An individual who operates as a sole proprietor
- An individual who operates as an independent contractor
- An individual who is self-employed who regularly carries on any trade or business
- A Tribal business concern that meets the SBA size standard
- A 501(c)(19) Veterans Organization that meets the SBA size standard
- If you are operating as a franchise or receive financial assistance from an approved Small Business Investment Company the normal affiliation rules do not apply – I believe this means that your franchisor and other franchisees do not count towards the size of your business.
3. What Will Be Required?
You will likely have to certify certain statements such as:
- You were in business prior to February 15, 2020 and had employees at that time
- You will use the proceeds of the loan to pay employees, rent, utilities and/or a mortgage
- You do not have a pending loan for a similar purpose
- If you are a sole proprietor, independent contractor or self employed, the lender may ask for other documentation such as 1099’s and tax filings
4. How Much Can I Borrow?
You can borrow up to 2.5 times your average monthly payroll costs up to $10 million. The calculation of your average payroll costs is the sum of all included (see below) payroll costs minus the excluded payroll costs. Included payroll costs include, according to the US Chamber’s guidelines:
- salary, wage, commission, or similar compensation;
- payment of cash tip or equivalent;
- payment for vacation, parental, family, medical, or sick leave
- allowance for dismissal or separation
- payment required for the provisions of group health care benefits,
- including insurance premiums
- payment of any retirement benefit
- payment of state or local tax assessed on the compensation
- of the employee
For sole proprietors, self employed individuals and independent contractors, the sum is of all wages, commissions, income and net earnings if that amount is less than $100,000 in one year.
Excluded payroll costs are compensation of any individual employee that is greater than $100,000; payroll, railroad and income taxes; compensation for an employee who resides outside of the United States; qualified sick leave wages if those wages are covered under the Families First Act.
5. Will The Loan Be Forgiven?
According to the US Chamber of Commerce, the loan will be forgiven based on the amount the borrower spent on the following items during the 8-week period after the loan has been given:
- Payroll costs (using the same definition of payroll costs used to determine loan eligibility)
- Interest on the mortgage obligation incurred in the ordinary course of business
- Rent on a leasing agreement
- Payments on utilities (electricity, gas, water, transportation, telephone, or internet)
- For borrowers with tipped employees, additional wages paid to those employees
The forgiveness amount will never exceed the principal borrowed. Additionally, the forgiveness will be reduced if the amount of wages or employees is reduced by 25% or more
For more information, please see https://www.uschamberfoundation.org/reports/coronavirus-emergency-loans-guide-and-checklist-small-businesses-and-nonprofits.
Other resources are available from the Small Business Administration at: https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources.
Please let us know how we can help you during this very unique time.