On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. The legislation allocates $350 billion to a Paycheck Protection Program (PPP) that will provide loans for small businesses that have been negatively impacted by the coronavirus pandemic. The loans may be eligible for forgiveness if the borrowers maintain their payrolls during the crisis or restore their payrolls afterward.
Unlike the Economic Injury Disaster Loans, for which a business applies through the SBA, a business applies for a loan under PPP through a lending institution. A list of lenders will be made available soon by the Small Business Administration. Potentially eligible recipients include small businesses and nonprofits with fewer than 500 employees, sole proprietors, independent contractors, self-employed individuals, and others.
Businesses may be eligible if they were in operation before February 15, 2020, the loan request is necessary due to current economic conditions, the business does not have an application pending for a duplicative loan, and the loan proceeds will be used to retain workers and maintain payroll or make mortgage, lease, and utility payments.
The amount of the loan can be up to 2.5 times the borrower’s average monthly “payroll costs”, not to exceed $10 million. The term payroll costs, as defined by the CARES Act, is rather broad and includes items such as salary and wages, payment for vacation and sick leave, payment for group health care benefits, and other costs.
Loans through the PPP can be forgiven, if eligibility requirements are met, in an amount equal to the business’ payroll costs and other costs as specified in the CARES Act, during the 8-week period beginning on the date of the origination of the loan. However, the loan forgiveness is reduced if there is a reduction in the number of employees or employee wages.
You can find more details about the PPP from the U.S. Chamber of Commerce here: https://www.uschamber.com/sites/default/files/023595_comm_corona_virus_smallbiz_loan_final.pdf .
This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation and legal questions.