Up to US$2TN of relief is available for U.S. businesses under the Paycheck Protection Program in the CARES Act's efforts to rescue the U.S. Economy through favorable, forgivable, non-recourse, uncollateralized, no-fee unguaranteed loans through private lenders up to $10,000,000 designed to help businesses pay salaries, mortgages, rent, and other expenses during the Coronavirus emergency. Here's how to participate in the program and protect your business.
Eligibility: All U.S.-based businesses in operation on February 15, 2020 with 500 or less salaried employees, and self-employed individuals (with some restrictions) are eligible to access loans through a streamlined Small Business Administration's 7(a) program.
Maximum Loan Amount: 250 percent of the employer's average monthly payroll over the past 12 months, subject to a limit of $10,000,000.
Permitted Uses for Loan Proceeds: Salaries (up to a limit of $100,000 per employee), and other payroll costs (health insurance, retirement contributions, etc.), rent and mortgage payments, utilities, and interest payment on other loans.
Unique Loan Features: Loans under the Paycheck Protection Program, although funded and administered by banks and other private lenders, will have no fees, no collateral requirements, no personal guarantees, deferred payments of principal and interest at favorable rates from 1 to 4% and are fully forgivable, provided the company spends the loan proceeds to keep employees on its payroll, with a formula for reducing the forgiveness amount based upon a percentage of employees terminated or subject to salary reductions. Even loans not forgiven in whole or part will enjoy favorable low interest terms of 4 percent or less for up to 10 years with no prepayment penalties.
Tax Provisions: Unlike conventional loan forgiveness, which creates taxable income, loans forgiven under the Paycheck Protection Program will be Federal tax free. The Act also includes liberalized deductions, credits, and payment extensions available to all businesses.
Timing: Congress and the Administration have promised to speed Paycheck Protection Program loan applications through the SBA by using banks and other financing resources, streamlining application forms and required information, and allowing business applicants to self-certify their eligibility.