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Thursday, April 2, 2020

COVID-19 Update: CARES Act Paycheck Protection Program

The Department of Treasury and Small Business Administration have released additional information and details, including a sample application, relating to the Small Business Paycheck Protection Program adopted as part of the CARES Act.  A brief summary and fact sheet of the Program can be found here.  To summarize, any business or non-profit entity with less than 500 employees (and some employers with more than 500 employees in certain industries) and sole proprietors and independent contractors are eligible for a loan to cover payroll costs, mortgage and rent payments, and utilities payments.  Funds from the loan used to cover payroll costs, mortgage, rent, and utilities in the 8 weeks after receiving the loan will be fully forgiven, but it is expected that at least 75% of the funds must be used to cover payroll costs to receive full forgiveness due to the projected high levels of participation in the Program.  The level of forgiveness is further conditioned on maintaining the same number of employees and compensation, or rehiring laid off employees in a timely manner.

The sample application (which can be found here) is comprised of 2 pages of questions and 2 pages of instructions.  The most important and labor intensive requirement will be for employers to provide the information on payroll costs, which determines the maximum amount of the loan.  Most employers will provide their average monthly payroll costs for the year before the loan and multiply that amount by 2.5 for the maximum loan amount.  Payroll costs include salaries, wages, commissions, health care insurance payments, and retirement benefit payments.  Compensation for any one employee is capped at $100,000 prorated on a monthly basis (i.e., nothing in excess of $8,333.33 per month can be included).  Documentation supporting the payroll costs will also need to be submitted.  Other attractive features of the Program loans include:

            ●          No collateral or personal guarantee;

            ●          Two-year term;

            ●          Interest rate of 0.5%; and

            ●          Deferral of payments for at least 6 months.

SBA-approved lenders and other banks and lenders will begin processing applications on April 3, 2020 for businesses and on April 10, 2020 for sole proprietors and independent contractors.  Interested employers should contact their local banks for the application.

The foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation and should not be relied on as such.  Please contact one of our lawyers if you have any questions.

This update was prepared by Kevin A. Sullivan.


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