On March 27, 2020, the United States implemented the CARES (Coronavirus Aid, Relief and Economic Security) Act. The CARES act is a monumental bill that was passed and signed into action by President Trump as a response to the devastating effects of the novel coronavirus. Its 880 pages of new law set out more than 2 trillion dollars in aid to help out individuals and businesses get through this crisis.
Of the provisions of this act, by now most of you are aware of the stimulus checks (Economic Impact Payments) that qualifying individuals and households should receive in the coming weeks. However, with this post, I want to shed some light on what I consider to be a more significant portion of the CARES act. It’s the very first section of the act, and it is titled the “Paycheck Protection Program.”
The “Paycheck Protection Program” is a type of loan given out to qualifying small businesses by the Federal Government to assist in the payment of payroll expenses, employee salaries, rent, and utilities for a short period of time (specifically the period from February 15, 2020 to June 30, 2020). While the financial assistance given to individuals and families has been coined the “stimulus check,” I would consider the “Paycheck Protection Program” to be a “stimulus loan” for small businesses.
Who qualifies for a Paycheck Protection loan?
To qualify as a “small” business, you cannot have more than 500 employees. However, the CARES act extends the definition to certain businesses in the hospitality industry that employ more than 500 employees, but have no more than 500 in a single location.
What does the loan cover?
A paycheck protection loan can be used to cover the following expenses for the period from February 1, 2020 to June 30, 2020:
- Payroll
- Healthcare benefits for employees
- Employee salaries
- Payments of interest on mortgage obligations
- Rent
- Utilities
- Interest on any other debt obligation accrued before the covered period
If you are applying for this loan, it's important that you do not lay off any employees during this period and do not reduce their pay by more than 25%.
Where can I obtain a Paycheck Protection loan?
These loans will be administered by the SBA (Small Business Administration) through SBA approved lenders, banks, and credit unions.
How do I get a Paycheck Protection loan?
You can apply for this loan through an SBA approved lender. The amount of the loan will be calculated by adding up your monthly costs for the covered expenses and multiplying the total by 2.5. As part of the application, your small business must make a good faith certification that:
- The uncertainty of the current economic conditions make the loan request necessary to support ongoing operations
- Acknowledge that the funds will be used for the expenses lined out above
- You, as the applicant, do not already have an application pending for another loan under the “Paycheck Protection Plan”
- You, as the applicant, have not already received other money from this plan
Can the loans be forgiven?
The loans can be forgiven in an amount equal to the costs spent during the eight-week period after the origination of the loan for payroll, interest on secured debt, rent, and utilities.
The amount of the forgiveness for the loans will be reduced if the employer does either of these things:
- Reduces its workforce during the eight week period compared to prior periods
- Reduces the salary of wages paid to an employee by more than 25% during the 8 week period
Keep in mind however, that although the act sets out that loans are eligible to be forgiven, that does not necessarily mean that they will be forgiven.
Another important clause set out under this subsection of the CARES act is that these loans will be non-recourse loans. It also waives the requirement of a common element of most loans, which is the requirement of a personal guarantee.
Why should I get a paycheck protection loan?
The virus is affecting everybody. Aside from the very real threat to your health and that of your loved ones, the virus has stymied the economy. Most people have been impacted by this crisis in some way. It’s important to remember that no one is legally to blame for the virus. Instead, this pandemic is what the law refers to as a “force majeure” event. That means it is legally an act of God, or, to be less blasphemous, an unforeseeable and unavoidable occurrence.
Depending on your situation, as a business owner, you may really need the help. Some others may just need a little financial boost to get through these uncertain times.
Perhaps the most important thing about the Paycheck Protection Program is that it encourages businesses to keep their doors open, to not cut payroll, and to not reduce their workforce. The way I look at it, this sort of plan is necessary in order to stifle unemployment. An individual stimulus check would be a mere “Band Aid” without a way for Americans to keep putting revenue into their pockets - and then subsequently putting that income back into the community.
Even so, this program isn’t a long term solution and we may just be “kicking the can down the road,” so to speak. But it’s better than nothing. It’s a way for businesses to fight through this uncertain time even with one metaphorical hand tied behind their back. Perhaps in two months we will be in a better place globally and as a nation, and this sort of federal aid will have been exactly what we needed to tough out these hard times.
No matter your reason for exploring the Paycheck Protection Program, if you need the help, it’s there. If you are interested in obtaining a loan through the CARES act but don’t know where to start, my office can help you understand all that legal language of this act in more depth. I can help interpret the jargon and further assist by helping you get in touch with the right people and offices to help you apply for a loan under this plan.
You can reach me through LongviewLaywers.com or by calling 903.753.4955.
We’re all in this together, and I am still here to help.
