On March 27, 2020, the $2 Trillion federal stimulus act known as the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted, providing among other things for $349 Billion in funding for forgivable loans to small businesses to assist in funding payroll and certain other expenses during the current coronavirus pandemic. The “Paycheck Protection Loans” are available to businesses with under 500 employees who had employees on payroll as of February 15, 2020 (and certain other businesses and nonprofit organizations specified in the CARES Act). Here is the basic summary.
Implementation: The CARES Act requires that final implementing regulations must be issued within 15 days after enactment (i.e. by April 11, 2020). Treasury Secretary Steve Mnuchin has said that he will look to have the application process implemented by April 3, 2020 (with a potential one day approval process). Loans can be made by any bank authorized to make SBA loans, and there is authority granted to allow other FDIC bank to make such loans even if they have not previously done SBA loans. Loans must be applied for by no later than June 30, 2020, but obviously sooner is better than later.
Loan Amount: The amount that can be borrowed is capped at the lesser of (i) $10 Million or (ii) 2.5 times the average monthly payments for “payroll costs” over the 12 months before applying for the loan. Payroll costs means payments of any compensation with respect to (i) salaries or similar compensation, (ii) vacation, parental, family, medical, or sick leave (other than those covered by certain other recent coronavirus response Federal laws), (iii) allowance for dismissal or separation, (iv) payments for the provision of group healthcare benefits, including insurance premiums, (v) payment of any retirement benefit, and (vi) payment of State and local taxes assessed on the compensation of employees. The excess portions of an employee’s compensation in excess of the $100,000 level does not count in the above calculation, nor do taxes imposed or withheld under chapters 21, 22, or 24 of the Internal Revenue Code.