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The CARES Act is a massive piece of legislation. The emergency loan or Paycheck Protection provisions are one component designed to assist small businesses and keep them afloat during the current crisis. The emergency loans will be made under the United States Small Business Administration (SBA) and are simply an expansion of its already existing 7(a) loan program. The loan process will be administered by the SBA through its local lending partners or approved SBA lenders. Over the next several days it is expected that the actual loan process will be further detailed by the SBA so that loans can be quickly processed.

The Paycheck Protection Provisions within the CARES Act are designed to get cash into the hands of business owners to help them survive the next several weeks. It is the intent of the legislation that the cash be used retain employees. A business receiving the funds that follows the rules laid out in the legislation can have the entire loan forgiven. 

Here are some of the basic components of the Paycheck Protection program:

• Eligibility
  • Available for any business with 500 employees or less (includes certain nonprofit organizations, sole proprietorships, self-employed individuals or independent contractors)
  • The business must have been in operation on March 1, 2020
  • Had employees for whom the business paid salaries and payroll taxes
• Amount of loan
  • Maximum loan amount available is the lesser of:
    • $10,000,000, or
    • 2 ½ times the average total monthly payments by the applicant for payroll, mortgage payments, rent payments, and payments on any other debt obligations incurred during the 1-year period before the date on which the loan is made. In the case of an applicant that is seasonal employer, the average total monthly payments for payroll shall be for the period beginning March 1, 2019 and ending June 30, 2019.
  • Permitted uses of loan funds
    • Payroll support, including paid sick, medical, or family leave, and costs related to the continuation of group health care benefits during those periods of leave
    • Employee salaries
    • Mortgage payments or rental payments
    • Utility payments
    • Other debt obligations incurred before March 1, 2020.
  • Payments deferred
    • Deferment of repayment of the loan for up to a year for loans made through June 30, 2020.
  • Loan forgiveness
    • An eligible recipient may have its loan forgiven up to an amount equal to:
      • The total payroll costs incurred from March 1, 2020 through June 30, 2020, and
      • The amount of payments made from March 1, 2020 through June 30, 2020 on debt obligations (mortgage, rent, utilities, etc.) that were incurred prior to March 1, 2020.
    • However, amount forgiven will be reduced:
      • If there was any reduction of the average number of current full-time workers over the period from February 15, 2019 through June 30, 2019.
      • If there was a reduction in excess of 25% of salary and wages in the most recent full quarter versus the prior year’s same period.
    • These reductions in the amount of the loan forgiven can be eliminated if the business rehires employees. Similarly, there will be no reduction if the business makes up any decrease in wages to employees in excess of the 25% threshold before June 30, 2020. These provisions are all designed to encourage businesses to retain employees, pay them the equivalent of their prior salary, and not penalize employers for reducing payroll prior to the CARES Act.
    • To fully take advantage of the loan forgiveness proper documentation will be critical concerning payroll expense, mortgage, rent, utility, and other eligible debt payments made.
    • To the extent any of the loan amount is not forgiven, any remaining balance will have a maximum maturity of 10 years and a maximum interest rate of 4%.

For more information or questions, please contact BMD Business & Corporate Law Member Blake Gerney at brgerney@bmdllc.com or 330.436.8905.