Paycheck Protection Program: Forgivable Loan for Up to 2.5 Months of Payroll

The bill allots $350 billion for special SBA loans that may be partially forgiven if certain conditions are met. Lenders will be authorized to make loans equal to 250% of an employer's average monthly payroll up to $10 million. Under that loan, eight weeks' worth of payroll obligations (including wages and benefits), plus rent or mortgage payments and utilities will be forgiven, and the amount forgiven would not be treated as taxable income to the small business owner.

The new loans will be available through 800 SBA-approved banks, credit unions and other lenders. But the bill also calls on the SBA and Treasury to increase the number of lenders offering the new loans. And it calls on the agencies to expedite the loan process.

• Who Can Apply:  Small businesses and nonprofits with fewer than 500 employees
  • Hospitality businesses (e.g., restaurants, bars, hotels, and RV parks) can treat each of their locations separately.
  • If you have more than 500 employees, you may still qualify.  Talk to your financial advisor.
• When You Can Apply:  Lenders have started accepting applications.  Loans must be taken before June 30, 2020.   

• How Much You Can Take:  The loan amount is capped at the lesser of 2.5 times your average monthly payroll or $10,000,000.

• How Loans are Forgiven:  If you use the loan for “eligible expenses” during an 8-week period after your loan’s origination date, the amount up to the loan principal can be forgiven, tax-free.  Eligible expenses include:
  • Payroll costs, including salaries up to $100,000 (annualized) per employee, health insurance premiums, commissions, cash tips, and state and local payroll taxes – but not federal payroll taxes⁽¹⁾
  • Interest payments on mortgages for real or personal property (but not principal or pre-payments)⁽²⁾
  • Rent⁽²⁾
  • Utilities⁽²⁾
• Loan Forgiveness Is Reduced If:
  • You reduce your full-time equivalents (FTEs), including cutting hours, during the “covered period.”
  • You reduce the compensation of employees who make less than $100,000/year by more than 25% during the “covered period.”
  • Those who also take the $10,000 Loan Advance described below will see the amount of their loan forgiveness reduced by $10,000
  • However, you may avoid the reduction in forgiveness if:
    • You made no further cuts by 30 days after the passage of the Act.
    • You rehire and raise wages to prior levels by June 30, 2020.
• Repaying the Loan
  • Your interest, principal, and fees will be deferred for 6 months.
  • The interest rate will be 1%.
  • Loan term is 2 years.
  • There are no prepayment penalties.
• Other Considerations:
  • No collateral or personal guarantees are required.
  • Sole proprietors, independent contractors, and self-employed individuals are all eligible under this program.
  • If you already have an Economic Injury Disaster Loan (EIDL) through the Small Business Administration for COVID-19, you can refinance it into this program, but you cannot hold both loans for the same expenses. 

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Economic Injury Disaster Loan & $10,000 Advance that Does Not Need to BE Repaid

The U.S. Small Business Administration is offering low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19). Small business owners in all U.S. states and territories are currently eligible to apply. Small businesses may also apply to receive an economic injury disaster loan advance of up to $10,000 that does not need to be paid back. The money would be paid out to business owners within three days of a successful application submission.