As a small business owner, you've probably been following news about the recently-passed $350 billion CARES Act (Coronavirus Aid, Relief, and Economic Security Act) and wondering how you may be able to access funds to help tide your business and staff over in this period of uncertainty. Here's a crash course of the provisions for small business owners.
First familiarize yourself with the basics of CARES to better understand if the Act's Paycheck Protection Program could apply to your individual business' situation and what the next steps are.
This list that follows is not all-inclusive; complete information on the CARES Act and Paycheck Protection Program can be found here.
Eligibility
Requirements for the program include small businesses or individuals that:
- have fewer than 500 employees, which includes all employees who are full-time, part-time and any other status, or
- operates as a sole proprietor or an independent contractor
Lender Requirements
The business must have been in operation before February 15, 2020 and had employees or independent contractors for whom they paid salaries and payroll taxes
- A personal guarantee or collateral are not required for the loan
- Lenders will ask for a good faith certification regarding need for the loan and how the loan will be used to support ongoing operations and payroll expenses, and may require additional documentation
Borrowing Limit
Up to 2.5 x average monthly payroll costs, not to exceed $10 million
- The calculation of payroll costs includes all forms of compensation and tips, personal or sick time payments, severance, health care of insurance premium payments
- Make sure you are aware of the salary limits and the detail surrounding the calculations of these loans; use the attached resources for more details
Loan Forgiveness
Under certain circumstances and timeframes, the loans may be forgiven. The loan forgiveness cannot exceed the principal, and could include:
- Payroll costs, mortgage interest, rent, utilities
- However, the amount of the loan forgiveness will be reduced if there is a reduction in the number of employees or more than a 25% reduction in wages
Attached are additional resources about the Act and the Paycheck Protection Program, along with a loan application form to help you get started if you are considering taking advantage of the program.
Small Business Guide and Checklist
We advise that you speak with your tax professional and financial advisor for guidance and the best course of action for your business. Remember, we're in this together.
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