The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) creates a $349 Billion loan lifeline to help small businesses such as your law firm pay payroll and other costs over the next few months. We’ve assembled this quick guide and FAQ to help you understand the program and how your firm may benefit. Additionally, we’ve provided links to the Top 100 SBA loan providers with whom you might apply.

One of the most important features of the Paycheck Protection Loan is a large portion of your loan could be FORGIVEN if you comply with the terms of the CARES Act

Paycheck Protection Loan Program FAQs

The following are the aspects of the Paycheck Protection Loan Program as we have interpreted in the CARES Act. These are subject to change upon guidance from the SBA and the U.S. government.

Updated 4/3/2020; Source: U.S. Small Business Administration

  • Small businesses, 501(c)(3) nonprofit, a 501(c)(19) veteran’s organization, or Tribal business concern described in section 31(b)(2)(C) of the Small Business Act with not more than 500 employees, or the applicable size standard for the industry as provided by SBA, if higher.
  • Sole-proprietors, independent contractors, and other self-employed individuals as eligible for loans.
  • Businesses with more than one physical location qualify so long as total combined employees are below 500 employees (unless the businesses operated under NAICS code beginning with 72) or otherwise meet the SBA’s size standard based on NAICS code.
  • Waives affiliation rules for businesses in the hospitality and restaurant industries, franchises that are approved on the SBA’s Franchise Directory, and small businesses that receive financing through the Small Business Investment Company (SBIC) program.
  • Applies current SBA affiliation rules to eligible nonprofits.

Businesses and non-profits must be operational as of February 15, 2020 and had employees for whom it paid salaries and payroll taxes, or a paid independent contractor.

Average eligible monthly payroll costs, excluding compensation above $100,000 in wages (based on prior 12 months) multiplied by 2.5 (represents months) – plus – the balance of any SBA Loan closed between 1/31/2020 and when this loan will be made, if applicable – OR – $10 million whichever is less.

Allowable uses of the loan include eligible payroll support (eligible employee salaries which excludes compensation above $100,000 in wages, paid sick or medical leave, insurance premiums), interest paid on a mortgage (excludes any prepayment of or payment of principal) or rent, and utility payments.

2-year full payout loan. There will be no prepayment penalty. Allows for complete deferment of SBA 7(a) Loan payments for at least six (6) months and not more than a year.

The loan will be unsecured. No collateral required.

  • Cannot apply for any other programs through the SBA for the same purpose.
  • If a borrower has an EIDL Loan unrelated to COVID-19, borrower is still eligible.
  • The emergency EIDL grant award of up to $10,000 would be subtracted from the amount forgiven under the Paycheck Protection Program.
  • Eligible borrowers will be required to make a good faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19; they will use the funds to retain workers and maintain payroll, lease, and utility payments; and are not receiving duplicative funds for the same uses from another SBA program.
  • The borrower is eligible for loan forgiveness equal to the amount spent by the borrower during an 8-week period after the origination date of the loan on eligible payroll costs, interest payments on any mortgage incurred prior to February 15, 2020 (excludes principal and prepayments), payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020. Amounts forgiven may not exceed the principal amount of the loan.
  • Forgiveness on a covered loan is equal to the sum of the following: eligible payroll costs (excludes compensation above $100,000 in wages) incurred during the covered 8 week period compared to the previous year or time period, proportionate to maintaining employees and wages: eligible payroll costs plus any payment of interest on any covered mortgage obligation (excludes any prepayment of or payment of principal on a covered mortgage obligation) plus any payment on any covered rent obligation + and any covered utility payment. Borrowers will verify these payments through documentation required by lenders, such as (but not limited to) IRS Payroll Expense Forms 940 and 941, mortgage statements, lease statements and utility statements.
  • The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year and reduced by the reduction in pay of any employee beyond 25 percent of their prior year compensation. To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.
  • Canceled indebtedness resulting from this section will not be included in the borrower’s taxable income.
  • Any loan amounts not forgiven at the end of one year are carried forward as an ongoing loan with terms of a max of 10 years at 4% interest. The 100% loan guarantee remains intact.

Here is a shortlist of the items we will need to process the SBA 7(a) relief loan:

  • Completed Application
  • Articles of Incorporation/Organization of each borrowing entity
  • By Laws/Operating Agreement of each borrowing entity
  • All owners Driver’s Licenses
  • Payroll Expense verification documents to include:
  • IRS Form 940 and 941
  • Payroll Summary Report with corresponding bank statement
  • If a Payroll Summary Report is not available, Employee Pay Stubs as of February 15, 2020 (or corresponding period) with corresponding bank statement, and,
  • Breakdown of payroll benefits (vacation, allowance for dismissal, group healthcare benefits, retirement benefits, etc.
  • 1099s (if Independent Contractor)
  • Certification that all employees live within the United States. If any do not, provide a detailed list with corresponding salaries of all employees outside the United States
  • Trailing twelve-month profit and loss statement (as of the date of application) for all applicants
  • Most recent Mortgage Statement or Rent Statement (Lease)
  • Most recent Utility Bills (Electric, Gas, Telephone, Internet, Water)

Paycheck Protection Loan Calculator

This is an estimate only and final amount is subject to details of the CARES Act and regulations.

 
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Payroll costs include: employee salary, wages and commissions; payment of cash tips; payment of vacation; parental, family, medical or sick leave; allowance for dismissal or separation; payment required for group health benefits (including insurance premiums); payment of retirement benefits; or payment of state or local tax assessed on employee compensation; and sole proprietor income or independent contractor compensation not in excess of $100,000.

Payroll costs exclude: compensation of an individual person in excess of $100,000 (as prorated for the period); federal employment taxes imposed or withheld taxes; compensation to an employee whose principal residence is outside of the U.S.; qualified sick leave for which a credit is allowed under Section 7001 of the Families First Coronavirus Response Act; and qualified family leave wages for which a credit is allowed under Section 7001 of the Families First Coronavirus Response Act.

How To Apply

1) Reach out to your firm’s current bank or lender to see if they are approved PPP Lenders. They already have a relationship with your firm and may be better able to quickly assist you.

–Or–

2) Explore any of the Top 100 SBA Loan Providers below. As the CARES Act was quickly passed to provide immediate relief, not all loan providers have a loan application yet. Below, we have provided links to application pages, where we know they exist, and will provide periodic updates. You can also visit each of the providers’ websites to check on their latest status.

Top 100 SBA Loan Providers

Last Updated 04/08/2020