CARES Act For Businesses: Paycheck Protection Program & Forgivable Loans

To help protect small businesses and their employees, the CARES Act provides a new type of loan through the Small Business Administration, a portion of which would be forgivable if used for certain types of expenses.

Background: The CARES Act, through the Small Business Administration (“SBA”), has allocated a significant amount of money to be put towards making new SBA loans to small businesses on very attractive terms. Even more, loan monies used for certain types of normal operating expenses (payroll, rent, transportation) would be FORGIVEN by the SBA. This is as close to “free money” as free money gets!

Eligible Organizations:

• Businesses with less than 500 total employees, unless such business is a multi-location restaurant (such as a franchise), in which case the limit is less than 500 employees per location
• Sole proprietors
• Independent contractors
• Self-employed individuals (i.e. “gig” workers)
• 501(c)3 nonprofit organizations
• Veterans organization

Timing: Small businesses must apply for these special SBA loans by June 30, 2020.  

Maximum Loan Amount: The lesser of $10,000,000 -OR- 2.5 times average monthly payroll in 2019. 

• If your business was not in operation during all of 2019, then you’d use the average of January and February 2020 payrolls times 2.5.
• There are other formulas for seasonal businesses.
• For highly compensated employees, compensation greater than $100,000 is excluded

Loan Terms:

• Maximum 10 year loan term
• Maximum 4.0% interest rate
• No personal loan guarantee required
• No collateral required

Loan Forgiveness: SBA loans under the Paycheck Protection Program would be forgivable if the funds are used in the first 8 weeks after loan disbursement for the following types of expenses:

• Payroll expenses, including salaries and commissions
• Group health insurance premiums
• Rental costs or Mortgage interest, assuming these amounts were not prepaid and were active as of February 15, 2020
• Utilities expenses, such as gas, water, electricity, transportation, telephone and internet access costs as long as these services were active as of February 15, 2020

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Interested in the other areas of the CARES Act? We are breaking down these details by section in the following resource. You can click to the particular section you’re interested in directly below if you’d like to read the specifics of those first.  We do encourage you to look through all of the sections that could potentially impact you since this is a very generous bill aimed at keeping our country’s economy strong during and after this pandemic.

Financial Design Studio CARES Act Summary

Like any benefit that becomes available to you it is critical to see if it makes sense to use the provisions allowed.  While a benefit might make your temporary financial situation better, it might not be beneficial in the long term. However, those who need these provisions were created for are likely in immediate need to use the benefits until employment returns to normal.

Individuals:

Recovery Rebates

Coronavirus-Related Retirement Distributions 

Enhanced loans from employer retirement plans

Required Minimum Distributions waived for 2020 

Qualified Charitable Contributions – NEW Above the line deduction 

AGI Limit for Cash Charitable Contributions Limit Temporary Repealed

Student Loan Borrower Relief

Miscellaneous Healthcare Benefits

Unemployment Benefits

Mortgage Forbearance Request

 

Business Owners:

Paycheck Protection Program & Forgivable Loans

Employee Retention Credit

Payroll Tax Payment Deferral 

Net Operating Losses Loosened

 Wondering how this affects your future finances? Schedule a call with Financial Design Studio, financial advisors in Deer Park, to discuss your portfolio today.

 

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