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CARES Act Paycheck Protection Program FAQ

By StreetShares on March 27, 2020


On March 27, 2020, Congress passed the Coronavirus Aid, Relief and Economic Security Act of 2020 (CARES Act).


Who is the Paycheck Protection Program for?

Paycheck Protection Program loans are available to a wide range of individuals and entities that are experiencing economic hardship as a result of the COVID-19 pandemic and its economic consequences. The purpose of the loan program is to help businesses keep their employees and meet their existing payment obligations through these uncertain times.


Accordingly, anyone seeking a Paycheck Protection loan will need to certify that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient.


Does my entity qualify for a Paycheck Protection loan?

To qualify an entity must:

  • Be a business, nonprofit, veterans organization, or tribal business; this includes sole proprietors, independent contractors, and self-employed individuals

  • Have been in operation on February 15, 2020

  • Have employees for whom the business paid salaries and payroll taxes (this includes full-time and part-time employees, and those employed on any other basis, such as independent contractors, as reported on a Form 1099–MISC)

  • Employ fewer than 500 employees (with certain exceptions)

Any entity that has received an SBA Economic Injury Disaster Loan (EIDL) may still seek a Paycheck Protection loan if the economic injury disaster loan funds were not for the purpose of paying payroll. Entities that received an economic injury disaster loan for the purpose of payroll will not be able to receive a Paycheck Protection loan for the same purpose.


What are the exceptions for entities with more than 500 employees?

Certain entities with more than 500 employees may still qualify for the loan if they meet either of the following criteria:


  • Has fewer than the SBA small business threshold for number of employees in the industry they operate in

  • Operates in food services or hospitality industry (NAICS industry code beginning with “72”), has multiple physical locations, and employs fewer than 500 employees at each physical location


My business is ineligible for SBA funding due to the affiliation rules. Are those rules waived for this program?

With a few exceptions, the typical SBA affiliate rules remain in force for the Paycheck Protection Program. Those exceptions include:


  • Operates in food services or hospitality industry (NAICS industry code beginning with “72”) and employs fewer than 500 employees

  • Any business operating as a franchise that is assigned a franchise identifier code by the Administration

  • Any business that receives financial assistance from a company licensed under section 301 of the Small Business Investment Act of 1958 (15 U.S.C. 681)


Are nonprofits eligible for the Paycheck Protection Program?

Yes, both public and private nonprofits are eligible.


However, nonprofit entities will not be eligible for this loan if those entities are eligible for payment for items or services furnished under a State plan under title XIX of the Social Security Act (42 U.S.C. 1396 et seq.) or under a waiver of such plan, other than a nonprofit entity for which the primary service provided by the nonprofit entity is substance abuse treatment and counseling.


Do the loan proceeds need to be used for specific purposes?

Yes. There are several uses of funds allowed under this program, and anyone seeking funds under this program will need to certify that funds will be used for an allowable purpose. Those purposes include:


  • Payroll costs (see "What is and is not considered payroll costs for the purpose of this loan?")

  • Payments of interest on any mortgage obligations*

  • Payments of interest on any other debt obligations*

  • Rent*

  • Utilities*

* Must be in force prior to February 15, 2020 to be allowable.


Funds used for allowable purposes will be eligible for forgiveness once proper documentation of the expenses has been provided to the lender. For allowed debt payments, only the interest portion of payments will be eligible for forgiveness.


How much do I qualify for? How is the loan amount determined?

The loan amount will be equal to 2.5 times the average monthly payroll costs during the 1-year period prior to the loan application date of the person or entity applying. The loan is capped at $10 million.

What is and is not considered payroll costs for the purpose of this loan?

The definition of “payroll costs” for the Paycheck Protection Program includes the following expenses:


  • Salary, wage, commission, or similar compensation

  • Payment of cash tip or equivalent

  • Payment for vacation, parental, family, medical, or sick leave

  • Allowance for dismissal or separation

  • Payment required for the provisions of group health care benefits, including insurance premiums

  • Payment of any retirement benefit

  • Payment of State or local tax assessed on the compensation of employees

  • The sum of payments of any compensation to a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as prorated for the covered period

Payroll costs, however, do not include the following expenses:

  • The compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period

  • Taxes imposed or withheld under chapters 21, 22, or 24 of the Internal Revenue Code of 1986 during the covered period

  • Any compensation of an employee whose principal place of residence is outside of the United States

  • Qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act (Public Law 116–127)

  • Qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act (Public Law 116–127)


Is the loan forgivable? How do I seek forgiveness for the loan?

Yes, up to 100% of the loan principal amount may be forgiven. Borrowers may seek forgiveness for the loan after loan proceeds have been spent on one of the allowable purposes (see "Do the loan proceeds need to be used for specific purposes?"). Only the principal portions of the loan spent on an allowed purpose during the 8 weeks after loan origination will be forgiven, and any remaining balance of the loan must be repaid according to the loan terms.


However, the amount of loan proceeds eligible for forgiveness will decrease if the average number of people employed by the business per month decreases after accepting the loan or if the salary or wages to an employee are reduced by more than 25%, even if the proceeds were used for an allowable purpose.


Loan forgiveness will be subject to verification of proper documentation, as determined by the SBA standards.

How is average employees calculated for purposes of loan forgiveness?

The sum total of expenses eligible for forgiveness will be multiplied by one of the the following ratios to determine the final amount of loan forgiveness:


  • Average number of full-time equivalent employees per month for the 8-week period beginning on the date of origination of the loan

Divided by


  • Average number of full-time equivalent employees per month from 2/15/2019 to 6/30/2019

OR


  • Average number of full-time equivalent employees per month for the 8-week period beginning on the date of origination of the loan

Divided by


  • ·Average number of full-time equivalent employees per month from 1/1/2020 to 2/29/2020

The average number of full-time equivalent employees is determined by calculating the average number of full-time equivalent employees for each pay period falling within a month. Seasonal employers (as determined by SBA guidelines) will be required to use the second calculation, but all other employers may use whichever calculation they choose. This calculation can only decrease, not increase, the amount of loan forgiveness.


If I accept this loan can I still take out an additional loan?

Yes. With one exception, borrowers who accept this payroll loan may still seek additional funding as needed. The usual SBA requirement that the borrower be ineligible to obtain credit elsewhere is waived for this loan program.


The one exception pertains to SBA Economic Injury Disaster Loans (EIDL) for the same purpose. Anyone seeking funds under the payroll loan program must certify that the entity applying has not already received an EDIL for the same purpose (i.e. for payroll). If an EDIL was used for payroll that loan could still be refinanced under the Paycheck Protection Program.

Is the loan secured or unsecured? Does it require a personal guarantee?

This loan is unsecured, which means no collateral is required. No personal guarantee from the applicant or anyone else associated with the entity is required for this loan. Loan funds applied to an allowable expense are non-recourse.

What are the general terms of this loan (e.g. interest rate, term length)?

Interest rates under this loan program are capped at 4%. Term length may not be longer than 10 years from the date that the borrower seeks loan forgiveness.


What if I cannot afford to make payments immediately? Are loan payments deferred?

All loans made under this program will automatically have payments deferred for at least 6 months.


Is there a deadline to receive Paycheck Protection funds?

Yes, the program deadline is June 30, 2020.

IMPORTANT NOTE: SBA program details are still being developed. Eligibility rules and amount are both subject to change. Dillard Capital is a advisory firm, not affiliated with the SBA, Dept. of the Treasury, or any government agency.


This site is for informational purposes only. It is not intended to constitute professional advice, including legal, financial, or tax advice, nor is Dillard Capital providing advice on any particular situation. Not a loan offer or a commitment to lend.

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