Coronavirus Loans: A Small Business Guide to the Coronavirus Aid, Relief, and Economic Security (CARES) Act

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed on March 27, 2020 to provide emergency relief for businesses affected by the Coronavirus.

Here’s what small business owners need to know to prepare to file for a Coronavirus loan.

What is the CARES Act?

The CARES Act allocates $350 billion to help small businesses keep workers employed amid the economic downturn associated with the Covid-19 pandemic.

Known as the Paycheck Protection Program, it provides 100% federally guaranteed loans to small businesses.

How Much Can a Small Business Borrow?

CARES Coronavirus loans can be taken for up to 2.5 times a business’s monthly payroll costs, not to exceed $10 million.

Will I Have to Pay the Loan Back?

These loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward.

 

 

Is My Business Eligible?

Your business is eligible for this Coronavirus loan program if you are:

• A small business with fewer than 500 employees
• A small business that otherwise meets the SBA’s size standard
• A 501(c)(3) with fewer than 500 employees
• An individual who operates as a sole proprietor
• An individual who operates as an independent contractor
• An individual who is self-employed who regularly carries on any trade or business
• A Tribal business concern that meets the SBA size standard
• A 501(c)(19) Veterans Organization that meets the SBA size standard

In addition, some special rules may make your business eligible:

• If you are in the accommodation and food services sector (NAICS 72), the 500-employee rule is applied on a per physical location basis
• If you are operating as a franchise or receive financial assistance from an approved Small Business Investment Company the normal affiliation rules do not apply

REMEMBER: The 500-employee threshold includes all employees: full-time, part-time, and any other status.

How Do I Calculate My Average Monthly Payroll Costs?

Included Payroll Costs:

For Employers: The sum of payments of any compensation with respect to employees that is a:

• salary, wage, commission, or similar compensation
• payment of cash tip or equivalent
• payment for vacation, parental, family, medical, or sick leave
• allowance for dismissal or separation
• payment required for the provisions of group health care benefits, including insurance premiums
• payment of any retirement benefit payment of state or local tax assessed on the compensation of the employee

For Sole Proprietors, Independent Contractors, and Self-Employed Individuals:

The sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in one year, as pro-rated for the covered period.

Excluded Payroll Costs:

1. Compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the period February 15, to June 30, 2020
2. Payroll taxes, railroad retirement taxes, and income taxes
3. Any compensation of an employee whose principal place of residence is outside of the United States
4. Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116– 5 127); or qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act

Will This Loan Be Forgiven?

A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 8-week period beginning on the date of the origination of the Coronavirus loan:

• Payroll costs (using the same definition of payroll costs used to
• determine loan eligibility)
• Interest on the mortgage obligation incurred in the ordinary course of business
• Rent on a leasing agreement
• Payments on utilities (electricity, gas, water, transportation, telephone, or internet)
• For borrowers with tipped employees, additional wages paid to those employees

The loan forgiveness cannot exceed the principal.

How Could the Loan Forgiveness Be Reduced?

The amount of loan forgiveness calculated above is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees.

What if I Bring Back Employees or Restore Wages?

Reductions in employment or wages that occur during the period beginning on February 15, 2020, and ending 30 days after enactment of the CARES Act, (as compared to February 15, 2020) shall not reduce the amount of loan forgiveness IF by June 30, 2020 the borrower eliminates the reduction in employees or reduction in wages.

More Information on Coronavirus Loans

• To learn more about the Coronavirus loan program, check out this helpful guide from the U.S. Chamber of Commerce: Small Business Guide and Checklist for COVID-19 Emergency Loans (PDF)
• You can also find other resources to help your small business deal with Covid-19 at the U.S. Chamber of Commerce’s Coronavirus webpage
• See a summary of other key provisions of the CARES Act in Forbes
• See how PrismHR is supporting our customers by visiting our Covid-19 Response page