What is the CARES Act and its Paycheck Protection Program?

The coronavirus pandemic has affected our global community in unimaginable ways. Many effects are yet to be revealed. For small businesses, the uncertainty felt during this unprecedented pause has left employers feeling overwhelmed and concerned for not only their business but also their employees.

As a direct response to the growing concern for the wellbeing of all Americans, legislators passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020. Among other provisions, the CARES Act designates $349 billion for the Paycheck Protection Program. This program offers financial support that will help small business leaders stay afloat as they navigate during this uncertain season.

For a small business owner, this program provides a federally backed loan, with a maximum of $10 million, to help with payroll and other operating costs. The CARES Act has lessened some of the restrictions typically associated with US Small Business Administration (SBA) programs. It also allows for loans to be delayed, deferred or forgiven.

For the New England-area, our small businesses are feeling the impact, too. We’re here to help by providing a breakdown of how the Paycheck Protection Program can provide relief during this public health crisis.

Impact on Small Businesses

The Paycheck Protection Program is a direct way to support small business leaders like you during the COVID-19 public health emergency. It expands the SBA’s 7(a) loan program by allowing financial institutions to provide loans to small businesses that meet the criteria listed in the CARES Act. These loans are fully guaranteed by the federal government. Neither collateral nor personal guarantees are required. Additionally, there are no fees for borrowers.

Criteria for Small Businesses

A small business or 501(c)3 organization with 500 or fewer employees is eligible for a loan. This group includes nonprofits, self-employed individuals, sole proprietorships, independent contractors, and Tribal business groups, for example.

For businesses with more than 500 employees, certain industries qualify. The SBA has a list, which is publicly available and categorized by industry. This list identifies businesses with more than 500 employees that are still considered as part of the small business category.

Certifications Before Approval

Before moving forward, a small business must confirm that they meet the following criteria:

• A loan is needed to support operations in direct response to the current and uncertain economic conditions

• The financial support will help to keep workers on staff, help leaders maintain payroll, and assist with payments for the mortgage, a lease or utilities

• An existing loan for the same request does not exist

• Payments from an SBA loan have not been received. This period covers February 15, 2020, until the end of the year — Dec. 31.

Using the Loan

Small businesses can use the loan to address payroll costs. Here are approved examples:

• Compensation to employees, including salary, wage, commission or a similar form of compensation

• Cash tips

• Vacation, parental, medical, or sick leave

• Group health care benefits

• State or local taxes on employee compensation

• An allowance for dismissal or separation

• Compensation to sole proprietors or independent contractors that is no more than $100,000 in 1 year

• Interest on debt responsibilities incurred before February 15, 2020

Paying federal taxes, compensating non-US resident employees, and paying employees who make more than $100,000 per year are not approved. Lastly, the loan funds cannot be used for sick and family leave wages that will be credited to qualified recipients through the Families First Coronavirus Response Act.

Application steps

Small businesses and sole proprietorships can apply for the Paycheck Protection Program on April 3, 2020. Beginning on April 10, independent contractors and self-employed individuals can apply for the program. There is a funding cap, so small businesses are encouraged to apply as quickly as possible. To apply for the Paycheck Protection Program, small businesses can begin with any existing SBA 7(a) lender.

They can also choose from among any federally insured depository institution or credit union, or a participating Farm Credit System institution. Other lenders may become available after being approved and enrolled in the program. Start with a local lender to see if they are eligible to participate. Regardless of the lender or the borrower, the loan terms will remain the same. If you would like to find a list of participating lenders, visit the SBA’s lender locator here.

You can begin reviewing the sample application, gathering documentation, connecting with your lender, and learning about how you can take advantage of this important opportunity. More details are included in this Small Business Guide and Checklist from the US Chambers of Commerce.

Loan Forgiveness

Under the Paycheck Protection Program, small businesses are receiving financial support as a loan. Loans will be fully forgiven if used for the following:

• Payroll costs

• Interests on mortgages

• Rent

• Utilities

Loan forgiveness is also dependent upon a small business keeping employees or quickly rehiring laid-off or furloughed employees at the same salary level. If a small business’s full-time staff number lowers, or if salaries or wages decrease, the loan forgiveness amount can be reduced.

Find Support

The Paycheck Protection Program is new and includes specific details and requirements. With many other things to consider, including personal health and wellness, tackling this time-sensitive task can be overwhelming. Together, we are all working quickly to do what’s best for the small business community. 

This is article is provided for general information purposes only and does not constitute advice of any kind. Please reach out to us to Navigate the world of HR during the coronavirus public health crisis–and beyond.

References: Treasury.gov, SBA.gov, and Nutter.