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COVID-19: CARES Act & The Paycheck Protection Program

SBA CARES LOANFor small businesses, the highlight of the available relief under the CARES Act is what is called the “Paycheck Protection Program.”  

On Friday, March 27, 2020, the Coronavirus Aid, Relief, and Economic Security – the “CARES Act” – became law and is intended to assist business owners with loans to cover whatever immediate needs they have due to the Coronavirus crisis.

What is the Paycheck Protection Program?

The PPP is designed to provide a direct incentive for small businesses to keep their workers on payroll by providing each small business a loan up to $10 million for payroll and certain other expenses.

On April 3, the Small Business Administration (“SBA”) issued its PPP interim-final rule,  which includes new information: Here is what we know about the PPP:

  • Do You Qualify For the Loan?  Businesses must have been in operation on February 15, 2020; including sole proprietorships, independent contractors and self-employed persons), private non-profit organization or 501(c)(19) veterans organizations affected by coronavirus/COVID-19; Small businesses in the hospitality and food industry with more than one location could also be eligible if their individual locations employ less than 500 workers;

  • How Do You Get The Loan? As of April 3, 2020, you must submit the updated PPP Loan Application through an approved lender to obtain the loan (and also for forgiveness on your loan). PPP Loans will be made on a “first-come, first-serve” basis and many banks are placing business on wait lists for CARES PPP Loans – it is critical to speak with a lending institution immediately;

  • How Can You Use the Loan? CARES makes available 100% guaranteed loans to cover specific business operating costs such as payment of: payroll costs (excluding compensation over $100,000), interest on a covered mortgage obligation, payment on a rent obligation, utility payments;

  • How Much Can You Borrow? The maximum loan size available to borrowers is the lesser of 250% of the average monthly payroll costs (with a look-back of 12 months or relevant period for seasonal businesses and including only up to $100k compensation per employee), or $10 million;

  • Loan forgiveness:    The PPP Loan will be fully forgiven if at least 75% of the funds are used for payroll costs (during the 8 weeks following loan origination) – the remaining 25% may be used on interest on mortgages, rent, and utilities.  PPP Loan payments will be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.

  • PPP Loan Interest Rate:  For any amounts not forgiven, the maximum term is 2 years, the maximum interest rate is 1% rather than 0.5% as originally proposed.

The U.S. Senate’s  “The Small Business Owner’s Guide to the CARES Act is a very good resource with additional details.  We recommend you read it.

We will update the LaszloLaw Blog with this information once it becomes available.

LaszloLaw continues to be open to serve our clients and the community.  We will continue to closely monitor the situation and will provide updates to you as necessary. On behalf of LaszloLaw, thank you for your trust, your business and your support.

Updated on 4/6/2020.

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