House of Representatives Pass the CARE Act, including Paycheck Protection Program, which provides access to emergency capital for small businesses. This afternoon, after some eleventh hour drama, the U.S. House of Representatives passed the CARE Act. President Trump is expected to sign the act into law soon. In addition to the tax changes outlined previously, the CARE Act creates a new loan program termed the Paycheck Protection Program or “PPP”.
Under the PPP, lenders certified by the SBA may make PPP loans to eligible businesses prior to June 30, 2020. Eligible businesses includes businesses with 500 or less employees and businesses in the food and hotel accommodations industries. Self-employed individuals and independent contractors are also eligible. For food and accommodation businesses, the 500 employee limits applies on a per location basis, rather than at the entity level. The maximum loan amounts available are 2.5 times the business’s average monthly payroll costs, not including salaries of over $100,000, up to $10 million.
Businesses are not required to pledge any collateral and owners not required to personally guarantee the loans. The funds from a PPP loan, however, must be used to either pay payroll costs, group health insurance premiums, mortgage interest, rent, utilities or interest on debt incurred prior to obtaining the PPP loan. The PPP loan funds may not be used to pay salaries in excess of $100,000.
The PPP loan is eligible for loan forgiveness. Under Section 1106 of the CARES Act, the principal of the PPP loan used to cover payroll costs, mortgage interest, rent and utilities during the first 8 weeks of the loan may be forgiven. Further, for the full loan forgiveness, the business must retain their employees and pay them at least 75% of their prior year compensation. If the business does not follow either of these restrictions, then the amount forgiven is reduced. This loan forgiveness effectively turns the loan into a governmental grant to cover up to 2.5 months payroll.
Once the President signs this Paycheck Protection Program into law, more information should be available on the SBA website, including a list of SBA approved lenders. If your business is struggling to weather this storm, we suggest you visit https://www.SBA.gov to learn more about this and other emergency loan programs available to you.