On March 27, 2020, Congress passed, and the President signed the “Coronavirus Aid, Relief, and Economic Security Act” — the “CARES Act.” The Act institutes the Paycheck Protection Program which is a nearly $350-billion program intended to provide American small businesses with payroll support in the form of a loan which can be forgiven. This loan is administered under the Small Business Administration (“SBA”) 7(a) loan program.
Who is eligible for this program?
Generally, businesses and certain non-profits that have fewer than 500 employees are eligible for loans. There are affiliation rules through which nominally separate entities may be aggregated for purposes of the business size limitation. Certain food service and hospitality businesses are exempted from the affiliation rules.
How is the loan amount determined?
Loans are generally available up to the lesser of 2.5x an entity’s average monthly payroll cost or $10 million. Interest will not exceed 4%.
How is the loan amount forgiven?
*Businesses are eligible for forgiveness equal to the following costs incurred during the 8-week period after the origination of the loan.
- Payroll costs (defined as salary, wages, commission, cash tips (capped per employee at an annual rate of pay of $100,000); vacation, parental, family, medical, or sick leave; allowances for dismissal or separation; group health care benefits, including insurance premiums; retirement benefits; and state or local taxes on employee compensation. For seasonal businesses, the calculation is based on the average total monthly payments for these payroll costs for the 12 weeks beginning on February 15, 2019 or for the period from March 1, 2019 through June 30, 2019.
- Payment of interest on mortgages entered into before February 15, 2020
- Payment on any rent under leases entered into before February 15, 2020
- Payments for utility services that began before February 15, 2020
*HRKCPA Note: during the 8-week period you must provide to your bank substantial documentation and certify to your bank that these eligible costs were paid. It is critically important that you have a plan in place to not only accurately account for these costs but be able to provide the necessary documentation to substantiate your costs during the 8-week period.
The total amount forgiven can be up to, but not exceeding, the principal amount of the loan. Loan forgiveness may be reduced based on reduction of employees or reduction in employee pay.
What are the repayment terms, costs and conditions?
- Loan Terms: 4% interest rate and maximum maturity date of 10 years for any remaining balance after application of loan forgiveness
- No Collateral or Guaranty Required
- Loan Fees will be waived
- No prepayment penalty for any payment on loans
- Applicants must provide a good faith certification that the loan is economically necessary, that loan proceeds will be used for authorized payments, and is not duplicative of another pending loan or funds received, along with the 7(a) loan application and documentation including IRS payroll tax filings, state income, payroll, and unemployment insurance filings, and financial statements verifying debt payments.
Hear what AICPA CEO Barry Melancon has to say about the Paycheck Protection Program.
Harper Rains, Knight & Company, P.A. will assist you, our client, navigate this process and help provide your bank the necessary computations to compute the maximum loan and maximum amount of forgiveness you are eligible for under this stimulus program. We have dedicated professionals monitoring the program and are here to serve you throughout this process.
To get started please email Covid@hrkcpa.com with your contact information, normal point of contact at Harper, Rains, Knight & Company, P.A. and we will be in contact with you to discuss the next steps.