On March 27, 2020 the President signed into law the Coronavirus Aid, Relief, and Economic Stability Act (CARES Act). Under this Act, some businesses will be eligible to receive a loan of up to $10 million with total forgiveness in the event businesses use the loan to maintain or restore their payroll.
Who is eligible?
- Businesses, start-ups, veterans organizations, and non-profits with 500 employees or less.
- Sole proprietorships.
- Independent contractors and eligible self-employed individuals.
What are the relevant loan terms?
- The SBA may guarantee covered loans for the covered period (February 15, 2020 – June 30, 2020).
- In terms of loan amounts, businesses could get up to the lesser of $10,000,000 or a specific calculated average (the amount guaranteed is an amount equal to a factor of the average total monthly payroll costs in the year before the loan is made or from the covered period, if the business did not exist last year).
- Notably, for businesses, payroll costs are defined as the sum of all payments for compensation, including salary, wage, cash tips, paid time-off, severance, healthcare benefits, state or local taxes. For sole proprietors or independent contractors, payroll costs are defined as the sum of all compensation payments, including wages, commissions or similar compensation capped at $100,000.
What can you use the loan for?
- Employee salaries (up to a certain amount).
- Paid sick, medical or family leave.
- Costs related to group healthcare benefits during periods of leave.
- Rent or mortgage payments.
- Other debt obligations.
What can you NOT use the loan for?
- Executive compensation over $100,000 per year.
- Compensation of an employee whose principal place of residence is outside the US.
- Sick and family leave wages covered under the recently enacted Families First Coronavirus Response Act (H.R. 6201).
Is it true that these loans could be forgiven?
- Yes, businesses could have the entire loan (up to $10,000,000) completely forgiven if they use it to maintain their payroll (keep people employed) during the covered period.
No collateral or personal guarantee is required for the loan during the covered period.
Loans under the CARES Act are available through U.S. Small Business Administration (SBA) approved lenders through June 30, 2020. Contact Shipman & Wright today for assistance in identifying SBA approved lenders and any additional questions or needs.