Expert Summary from the VantagePoint Team:While all the details are not out yet, we wanted to get this in your hands as soon as possible. Here is a summary of the programs: Paycheck Protection Program: This is a loan program modeled on the Small Business Administration’s (SBA) existing 7(a) program. Eligible small businesses can get a loan to cover costs incurred between February 15th, 2020, & June 30th, 2020.
- Eligible if you meet the SBA’s “small business concern” definition, and businesses up to 500 employees. Affiliation rules apply. Under this program, your total number of “employees” includes full-time and part-time employees, as well as seasonal or temporary personnel.
- Certain hospitality and foodservice companies, with a NAICS code beginning with “72,” have special consideration. If they have 500 or more total employees across multiple locations, they can look at each physical location that has less than 500 and apply for a loan accordingly.
What are the loan provisions?
- You can borrow up to 250% of your average monthly “payroll costs” (based on a 12-month look back), not to exceed $10 million.
- “Payroll costs” include compensation paid to employees and self-employed contractors, capped at $100,000 per year per individual (prorated over the “covered” period). Compensation above $100,000 is excluded from the calculation.
- “Payroll costs”, under the existing SBA definition, can also include cash tip equivalents, cost of health insurance premium, HRA reimbursements, cost of retirement benefits, cost of leave (e.g., vacation, family, and sick leave), and the payment of state or local taxes assessed on employee compensation.
What are the loan terms?
- Loans will be issued via the SBA’s network of 7(a) program lenders and will be 100% guaranteed by the SBA. Having available credit from other sources does not disqualify you. There are no application fees or closing costs allowed. There is no collateral or personal guarantee required.
- The maximum interest rate lenders can charge is 4%. The maximum loan term is 10 years. The first 6 months of payments (principal and interest) are automatically deferred. This deferral period can be extended up to a year.
What can I use the loan for?
- Proceeds can be used during the 8-week period after loan origination for payroll costs (see list above), mortgage interest payments, rent, utilities, and interest on the prior debt.
Do I have to pay the loan back?
- General forgiveness: A portion of your total loan is eligible for forgiveness in the amount equal to your “payroll costs,” plus interest paid on covered mortgage obligations, rent, and utility payments between February 15, 2020, and June 30, 2020. Forgiven amounts will not be taxable as income to your business. “Covered” obligations must have been in place prior to February 15, 2020.
- Reductions in forgiveness: The loan amount ultimately forgiven by the federal government will be reduced by the number of employees laid off or who absorbed a salary reduction of more than 25% prior to, or during, the period between February 15, 2020, and June 30, 2020. Final calculations are being reviewed.
- Certification: Verifiable proof of employees, payroll, and other qualified expenses during February 15, 2020, and June 30, 2020, will be required.
What if some or, all of your employees were already furloughed or laid off?
- If employees are re-hired that were previously laid off after February 15, 2020, and/or you restore any employee salary reductions no later than June 20, 2020, any corresponding reduction in loan forgiveness may be avoided.
When and how to apply for a loan?
- Under the CARES Act, all lending institutions are approved by the SBA to issue these loans.
- However, loans will not be available until the SBA issues final guidance to lenders.
- We expect this to take some time.
- We will update you as soon as we have more information on this piece.
The CARES Act allows businesses to take advantage of either the loan forgiveness program described above OR the tax relief options described below. You cannot take advantage of both. Tax Relief for Small Businesses
- Employee retention credit:
- Fully refundable 50% tax credit applicable to the employer’s share of payroll taxes (6.2% on Social Security; 1.45% on Medicare) on wages up to $10,000 per employee.
- You must be able to demonstrate that your operations were suspended due to an official government order related to COVID-19, or
- Your gross receipts declined by at least 50% compared to the same quarter in 2019.
Payroll tax holiday
- May defer payment on the employer share of Social Security taxes paid from March 27, 2020, to January 1, 2021.
- 50% of the deferred amount is due by December 31, 2021.
- The remaining amount due by December 31, 2022.
- Employers retain sole liability for the eventual payment of these deferred taxes.
Disclaimer: This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advice. |
