On March 27, 2020, the U.S. House of Representatives passed the COVID-19 stimulus bill, known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act (H.R. 748), which provides much needed assistance for small businesses, including certain non-profits, including 501(c)(3) organizations.
The Paycheck Protection Program is an expansion of the existing SBA 7(a) Loan Program, including the following:
- Loans are available to businesses with 500 or fewer employees. 501(c)(3) and 501(c)(19) organizations are the only type of nonprofit able to qualify.
- Generally, the maximum loan amount the business can receive is equal to 2.5x the average monthly payroll over the prior 12 months
- Payroll costs can include 1099 contractor payments in certain circumstances and any compensation to an employee in excess of 100,000 (annualized) will not be considered in the calculation
- The loan does not require collateral or a personal guarantee of the business owner
- The loan is 100% guaranteed by the SBA
- There are minimal financial disclosures required — just a Borrower certification that current economic conditions makes the loan necessary to support ongoing operations of the Borrower
- The customary SBA requirement for a business to be unable to obtain credit elsewhere has been waived and is not to be applied to these loans
- All of the origination fees are paid by the SBA and the CARES Act includes incentives for banks to participate in the program
- A portion of the Loan will be forgiven to the extent the loan proceeds are used for the following: 8 weeks of payroll, mortgage interest, utilities and rent (provided 75% of the loan amount is used for payroll). There will be a reduction in the forgiveness amount to the extent that: (i) there is more than a 25% reduction in wages; (ii) the workforce is reduced as compared to a similar period in 2019; or (iii) the business is receiving payroll tax credits related to the paid sick time or FMLA paid leave for child care that is now mandatory for those impacted by COVID-19.
NOTE: to the extent that employees are furloughed and are rehired within 30 days of the CARES Act, it will not impact the ability of the business to receive forgiveness of the loan. • The loan forgiveness will require documentation to verify the use of the loan proceeds. • • To the extent a portion of the loan is not forgiven, the balance is converted to a 10-year loan at 4%, and will continue to be 100% guaranteed by the SBA.
This post is intended to provide a general overview of the Paycheck Protection Program. If you think your business may qualify and would like to discuss the specific requirements or you would like other assistance during this difficult time, please contact Blalock Walters at 941.748.0100 as our attorneys are ready to assist you.