Business Loan Forgiveness Included in CARES Act

Within the Coronavirus Aid, Recovery and Economic Security (CARES) Act that President Trump signed on March 27, 2020 is a $350 billion Paycheck Protection Program that will allow businesses and nonprofits with fewer than 500 employees to apply for loans up to $10 million each to cover losses caused by the COVID-19 pandemic.

The general provisions are:

• No collateral or personal guarantee is required for a loan.
• The interest rate on loans under the program is not to exceed 4%.
• Loan proceeds not forgiven are payable over 10 years.
• There will be no fee associated with the loans and no prepayment penalty for any payments made.
• The Administrator has no recourse against any individual, shareholder, member, or partner of an eligible loan recipient for non-payment, unless the individual uses the loan proceeds for unauthorized purposes (see discussion below of permitted uses).
• Cannot be denied based on “credit elsewhere” meaning availability of credit from non-federal sources

What makes this relief even more significant is the possibility for loan forgiveness, which is available to employers who retain their workforce levels through the crisis. If you follow the guidelines carefully, you can essentially convert your business loan to a grant – even if you’ve already laid off employees.

Loan Forgiveness Requirements

Loans may be forgiven if businesses use the money to pay for payroll costs, salaries, benefits, mortgage interest, rent and/or utilities. The forgiven amount would be equal to the amount actually paid for these expenses during the eight weeks following disbursement of the loan. Additional wages paid to tipped employees under Section 3(m)(2)(A) of the Fair Labor Standard Acts may also be forgiven.

Forgiveness will be scaled back if the business has a reduction in employees, salaries or wages. Reductions in workforce, salaries and wages that occur from February 15, 2020 to April 26, 2020 will be disregarded for purposes of reducing the forgiveness amount, as long as the reductions are eliminated by June 30, 2020.

For purposes of the loan forgiveness, a reduction in workforce and salary or wages will be calculated as follows:

• Workforce reductions will be calculated by the initial forgiven amount multiplied by the quotient of average full-time equivalents (FTEs) during the eight-week period, divided by the average FTEs for the period from February 15, 2019 through June 30, 2019 or January 1, 2020 through February 29, 2020, as determined by the loan recipient.
• Salary or wage reductions will be determined by the amount of any salary or wage decrease in excess of 25 percent of the total salary or wages during the most recent full quarter such employee was employed before the eight-week period. Only employees who did not receive, during any single pay period during 2019, wages or salary at an annualized rate of pay in excess of $100,000 are included in this calculation.

We understand this process can be complicated, and Grassi Loan Consultants are here to help you complete your application and achieve maximum loan forgiveness.

If you need assistance as you navigate this new program, contact Michael Violano at mviolano@grassicpas.com.