• T. Maxwell Smith, PLLC

Coronavirus Aid, Relief, and Economic Security Act (H.R. 748 CARES Act)

This blog is not to be considered legal advice. It refers specifically to issues regarding the law of the State of Texas at the time it was written and it is not guaranteed to be an exhaustive update of all COVID-19 related law. This blog is based on information provided by the United States Department of the Treasury at https://home.treasury.gov/cares. Visit the Treasury’s website or give me a call at (817) 475-5522 for more information.


The Coronavirus Aid, Relief, and Economic Security Act was signed into law on March 24, 2020. The act was designed to attempt to curtail the economic fallout in the United States surrounding the 2020 Coronavirus (COVID-19) pandemic.



Paycheck Protection Program (PPP)


With the Paycheck Protection Program (PPP) portion of the CARES Act Congress has authorized up to $349 billion to go towards loans to small businesses that may be forgiven provided that the employer adheres to the provisions of the Act.


Loan Forgiveness


The Department of the Treasury has stated, regarding the extent of the loan forgiveness that, “The loan amounts will be forgiven as long as:


[1] The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made;

[2] and Employee and compensation levels are maintained.”



How to Apply?


Small Businesses (500 employees or less) / Sole Proprietorships:

Through existing SBA Lenders beginning on Friday, April 3, 2020.


Independent Contractors / Self-Employed Individuals:

Through existing SBA Lenders beginning on Friday, April 10, 2020.


Non-SBA Approved Lenders will not be able to accept applications / approve loans until they have successfully been approved and enrolled in the program. Contact your bank to determine whether or not they are an existing SBA Lender.


Many different types and sizes of businesses are eligible to apply for the the Paycheck Protection Program. These include businesses with 500 employees or fewer, nonprofits, veterans, organizations, tribal businesses, and sole proprietorships as well as those who are self employed / independent contractors. Additionally, there are some circumstances in which businesses that exceed 500 employees will be eligible for the loan


In order to apply, businesses owners will be required to prepare a Paycheck Protection Program Loan Application and submit it to an approved lender. Applications must be filed by June 30, 2020. The application can be found on the Treasury’s website. The following redirects to their site: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Application-3-30-2020-v3.pdf. Accurate payroll documentation will be required to accompany your application.


Additional Information


The program is scheduled to last until June 30, 2020 but funding is capped and will not be provided once that cap is reached.


This Emergency SBA Loan should be used for [1] payroll costs, including benefits, [2] interest of mortgage obligations (that existed prior to February 15, 2020) , [3] rent under lease agreements (that existed prior to February 15, 2020), and [4] utilities (for services that existed prior to February 15, 2020).


The loan can be for an amount that is up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount. This amount has a cap at $10,000,000. Depending on their individual circumstances, seasonal or new businesses may have an alternative method of calculation regarding their payroll average.


The loan is a two (2) year fixed loan at an interest rate of .50%. All payments will be deferred for six months (the loan will accrue interest over that 6 month deferment period). There are no prepayment penalties or fees and no collateral or personal guarantees required. If the proceeds of the loan are used for fraudulent purposes, that is purposes other than what they are specified for, the U.S. Government will pursue criminal charges against the business / filer / owner.



Certification


As a part of an application, a business must certify, “in good faith that:


  • Current economic uncertainty makes the loan necessary to support your ongoing operations.

  • The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.

  • You have not and will not receive another loan under this program.

  • You will provide to the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan.

  • Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.

  • All the information you provided in your application and in all supporting documents and forms is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law.

  • You acknowledge that the lender will calculate the eligible loan amount using the tax documents you submitted. You affirm that the tax documents are identical to those you submitted to the IRS. And you also understand, acknowledge, and agree that the lender can share the tax information with the SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.”


Loan Forgiveness


If a company uses its loan for other than payroll costs, mortgage interest, rent, or payments on utilities, then the company will be required to pay back the loan. At least 75% of the loan must go towards payroll costs.


A company will have to pay back its loan if it does not maintain its staff and payroll. A company’s loan forgiveness will be reduced if the company cuts the number of its its full-time employees or if it reduces its wages / salaries by more than 25 (for employees that made less than $100,000 in 2019).


Additionally, companies are provided until June 30, 2020 to restore their level of full-time employees / salaries for any changes that were made between February 15, 2020 and April 26, 2020.


Loan forgiveness can be requested by providing specific information to a business’s lender. The submission will include a verification of the number of “full-time equivalent” employees and corresponding pay rates. It will also include proof of payments on eligible mortgage, lease, and utility obligations. Businesses must certify that the documents are true and correct and that they used the amount forgiven to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.


Business law in the best of times can be tricky to navigate and circumstances can vary from case to case. If you are feeling like you are in over your head on this one or would just like some more information regarding the new COVID-19 laws, do not hesitate to give me a call at (817) 475-5522.





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