Last week, The Cullen Law Firm provided guidance on new loan and unemployment benefit programs implemented by the Coronavirus Aid, Relief, Economic Security Act (“CARES Act”), the largest financial assistance package enacted in United States history. A principle component of the CARES Act was the creation of the Paycheck Protection Program and the expansion of the Emergency Economic Injury Disaster Loan Program (“EIDL Program”) to assist small businesses, independent contractors, sole proprietors, and the self-employed impacted by the COVID-19 pandemic. These new programs could provide vital economic support for the motor carrier industry, specifically owner-operators and employee drivers, as the full effect of the pandemic is realized in the weeks and months ahead.
This article provides an update on the Paycheck Protection and EIDL Programs. The United States Department of Treasury (“Treasury”) and the Small Business Administration (“SBA”) have released important new information about how to apply for financial support, the timeline to apply, loan repayment terms, and loan forgiveness. If you are considering taking advantage of the Paycheck Protection and/or EIDL Programs, this information is critical in order to make an informed decision.
Applying for a Paycheck Protection Loan
The paycheck protection loan application is now available along with a borrower information sheet to provide additional guidance. Treasury has indicated that small business and sole proprietor applicants can start receiving loans as soon as Friday, April 3, while independent contractors and the self-employed can begin applying Friday, April 10. Applications, along with all necessary supporting documentation, are due by June 30, 2020.
Terms of a Paycheck Protection Loan
For those loan amounts that are ineligible for forgiveness (discussed further below), the interest rate will be fixed rate of %1 with a 2-year term. All payments will be deferred for 6 months, although interest will accrue during that time. No collateral or personal guarantee is required in order to obtain a paycheck protection loan. There is also no prepayment penalty
Paycheck Protection Loan Forgiveness
While funds obtained from a paycheck protection loan used on qualified business expenses (payroll including benefits, interest on debt obligations, rent, and utilities) within the first eight weeks of the loans origination, Treasury is now forecasting that not more than 25% of the forgiveness amount may be for non-payroll costs. This forecast is based on the belief that the Paycheck Protection Program will be highly subscribed, with the bulk of the money to be used to maintain employee roles and income. Payroll costs include:
- Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
- Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
- State and local taxes assessed on compensation; and
- For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.
Eligible loans will be fully forgiven, including interest accrued during the forgiveness period. Lenders will be required to make a determination regarding forgiveness within 60 days of receiving a loan forgiveness request.
Emergency Economic Injury Disaster Loan
As discussed in The Cullen Law Firm’s previous post, the CARES Act also expands access to the EIDL Program. Small businesses, independent contractors, and sole proprietors can apply for both a paycheck protection loan and EIDL loan, provided that the loans are not used for the same purpose. Applicants for an EIDL loan are eligible to receive an emergency $10,000 advance that will not have to be repaid even if the application is ultimately denied. That money can be used for payroll costs, increased material costs, rent or mortgage payments, or for repaying obligations that cannot be met due to revenue losses.
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The Cullen Law Firm will continue to provide updates on CARES Act financial assistance programs as they are put into place and additional guidance is released. If you have any questions about these programs, please contact:
Gregory R. Reed (202) 298-4767 GRR@CullenLaw.com
Paul D. Cullen, Jr. (202) 944-8600 PXC@CullenLaw.com