CARES Act Updates

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Paycheck Protection Program Application & Updates

The SBA just released updated guidance for CARES Act Loans. Below is a bullet point summary of the relevant changes and attached is the PDF of the full set of guidance. This will have an effect on the calculations used in the loan application. Attached is what we believe the be the updated final form application.

Small businesses have been severely affected by the economic calamity that COVID-19 has caused.  The CARES Act signed this week supports small businesses through additional loans and grants to help them keep as many workers employed as possible.

  1. Compensation paid to independent contractors can no longer be included in Payroll Costs for a company because the independent contractor can apply for a loan on its own.
  2. Interest rate has been confirmed at 100 bps
  3. E signing will be permitted
  4. For purposes of determining number of employees to qualify as a small business (i.e. less than 500 or lower than the applicable NAICS code threshold), only US based employees will count
  5. Affiliation survived, but the SBA has stated that it intends to issue updated guidance on affiliation, which leads me to believe affiliation will be waived or at least modified in some favorable way for many of our clients
  6. When calculating payroll costs, only FICA taxes paid between 2/15/20 and 6/30/20 are excluded
  7. Payroll costs are definitely calculated based on the trailing twelve month period. There was some confusion on this point previously as the application referenced 2019 payroll numbers.
  8. Borrowers are now required to utilize 75% of loan proceeds for payroll costs. There previously was no requirement to use any percentage for payroll costs, it just affected the amount of loan forgiveness. The minimum percentage is now an affirmative requirement.
  9. If loan proceeds are used for not permitted purposes (i.e. not for payroll, rent, utilities and interest expense) the loan will have to immediately be repaid and additional liability such as charges for fraud can be brought up
  10. Certification for those signing the application have been heightened and include an acknowledgment that the federal government can hold the signer legally liable if loan funds are used for an unauthorized purpose.
  11. Headcount restrictions for non-profit organizations have been removed.

Note that the language in the guidance contains what we are fairly certain is a drafting error in section 2a, but could have the potential to make qualification more difficult. The language says that you now not only have to meet the headcount requirements, but that you also have to meet the criteria of a small business concern under 15 USC 632 to be an eligible borrower. The CARES Act bill says that a borrower could qualify for the loan if it met the criteria for a small business concern, has less than 500 employees orhas less than the number of employees required under its applicable NAICS code. Again, we feel this is a clear unintentional mistake in the drafting, and are advising clients to submit applications in spite of this.


Interim Final Rule_PPP


The Treasury Department just released guidance on the terms of the SBA loans under the CARES Act passed this week. Terms of the loans are as follows:

  • Interest rate of 0.5%
  • Maturity of 2 years
  • First payment deferred for six months
  • 100% guarantee by SBA
  • No collateral
  • No personal guarantees
  • No borrower or lender fees payable to SBA

To access the application for the SBA 7a CARES Act loans, please use:

Note also that the treasury is expecting to only allow 25% of the amount of the loan that is forgiven to be comprised of rent, utilities, group health care benefits, sick leave, insurance premiums and other obligations. Said another way, 75% of the amount of the loan that is forgiven has to come from payroll costs.


IRS FAQs – Employee Retention Credit

Regarding the Employee Retention Credit under the CARES Act, the IRS issued FAQs today that I find to be very helpful.

A few key observations:

  • The maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000 (based on 50% of $10,000, which is the maximum qualified wages allowed to be taken into account)
  • Employers can claim the Employee Retention Credit for qualified wages paid in March 2020.