AMOUNTS OF LOANS USED TO COVER COSTS TO BE FORGIVEN
On Saturday, March 28, 2020, President Trump signed into law the largest financial assistance package in United States history: The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. One of the largest components of the CARES Act is the Paycheck Protection Program, a new program operated by the Small Business Administration (“SBA”), to provide $350 billion in government-backed loans for small businesses, independent contractors, and sole proprietors impacted by the COVID-19 pandemic.[i] The CARES Act also provides relief by expanding eligibility to SBA’s Economic Injury Disaster Loans (EIDL) program.[ii] The EIDL program was infused with additional government funding to provide disaster assistance loans pursuant to the Coronavirus Preparedness and Response Supplemental Appropriations Act, which was signed into law in early March.
These new government support programs could be a vital resource to keep your trucking business moving forward during these difficult and uncertain times.
The Paycheck Protection Program
The Paycheck Protection Program builds on SBA’s existing 7(a) loan program through which small businesses have been able to obtain SBA-backed loans for working capital or disaster relief. The Paycheck Protection Program expands access to these loans to independent contractors and sole proprietors to address economic disruptions causes by COVID-19. Paycheck protection loans, like SBA 7(a) loans, will be administered by SBA’s network of more than 800 qualified lenders located throughout the nation. To find a qualified lender, visit https://www.sba.gov/funding-programs/loans/lender-match. The SBA also released at the beginning of this year a list of the 100 most active SBA 7(a) lenders by volume.
Loans can be up to 2.5 X the borrower’s payroll costs to $10 million[iii] with an interest rate no higher than 4%.[iv] Payroll costs include compensation earned by independent contractors and sole proprietors.[v] No personal guarantee or collateral is required in order to obtain a loan.[vi] Lenders are expected to defer fees, principle, and interest payments for at least six months. Loans obtained through a Paycheck Protection Program, as discussed further below, may be eligible for forgiveness.
Who is eligible for the Paycheck Protection Program?
The Paycheck Protection Program is available for small businesses with less than 500 employees, independent contractors, sole proprietors, and self-employed individuals that regularly carry on any trade or business.[vii] In evaluating an application, the lender will look to see that the loan request is necessary to support ongoing operations due to current economic conditions. The lender will also look for confirmation that the borrower will use the loan to retain workers, maintain payroll, and/or make mortgage, lease, and utility payments.[viii] Independent contractors, sole proprietors, and eligible self-employed individuals may be required to submit payroll tax filing, 1099-MISC, and income and expenses documentation.[ix]
Loan forgiveness under the Paycheck Protection Program
payroll costs (including compensation earned by independent contractors and sole proprietors less $100,000);
- interest on any mortgage obligation;
- utility payments;
- and any additional wages paid to employees (e.g., if employees are tipped).
The amount of loan forgiveness cannot exceed the principle of the loan.[xii] Loan forgiveness may be reduced if there is any reduction in the number of employees or employee salaries.[xiii] Any amount forgiven is not taxable.[xiv] Additional guidance will be released by the SBA within the next 30 days.[xv]
Expanded Eligibility for Economic Injury Disaster Loans
Under the CARES Act and the Coronavirus Preparedness and Response Supplemental Appropriations Act, small business owners, independent contractors, and sole proprietors can also apply for an economic injury disaster loan.[xvi] These loans are typically provided in response to specific disaster declarations. Small business owners, sole proprietors, and independent contractors are eligible for economic injury disaster loans in all U.S. states. To learn more about your state’s Coronavirus disaster declaration, visit at https://disasterloan.sba.gov/ela/Declarations. In order to obtain an economic injury disaster loan, an applicant must provide a satisfactory credit score and demonstrate an ability to repay any loan that exceeds $25,000. The maximum interest rate (set by law and fixed for the life of the loan) is 3.750%.
Under the CARES Act, small business owners, independent contractors, and sole proprietors can receive an economic injury disaster loan advance up to $10,000.[xvii] Those funds are to be used to maintain payroll to retain employees, meeting increased costs to obtain materials unavailable due to interrupted supply chains, making rent or mortgage payments, and repaying obligations that cannot be met due to revenue losses.[xviii] They will be made available within three days of a successful application and the loan advance will not have to be repaid.[xix] To apply for an economic injury disaster loan, visit: https://covid19relief.sba.gov/#/.
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For more information about SBA resources addressing COVID-19 and its economic impact, visit https://www.sba.gov/funding-programs/disaster-assistance.
If you have any questions about SBA financial assistance or navigating the Paycheck Protection or Economic Injury Disaster Loan programs, please contact:
Gregory R. Reed (202) 298-4767 GRR@CullenLaw.com
Paul D. Cullen, Jr. 202) 944-8600 PXC@CullenLaw.com
[i] Sec. 1102(b)(1).
[ii] Sec. 1110(b).
[iii] Sec. 1102(a)(2)(E).
[iv] Sec. 1102(a)(2)(L).
[v] Annual compensation or income for an employee, independent contractor, or sole proprietor in excess of $100,000 is not covered by the Paycheck Protection Program. Sec. 1102(a)(2)(A)(viii)(I)(bb), (II)(aa).
[vi] Sec. 1102(a)(2)(H), (J).
[vii] Sec. 1102(a)(2)(D)(i)–(ii).
[viii] Sec. 1102 (a)(2)G).
[ix] Sec. 1102(a)(2)(D)(ii)(II).
[x] Sec. 1102(a)(2)(F), Sec 1106(a)(7).
[xi] Sec. 1106(b).
[xii] Sec. 1106(d)(1).
[xiii] Sec. 1106 (d)(2)–(3).
[xiv] Sec. 1106 (i).
[xv] Sec. 1106(k)
[xvi] Sec. 1110(a)(2).
[xvii] Sec. 1110(e)(1), (3).
[xviii] Sec. 1110(e)(4).
[xix] Sec. 1110(e)(1), (5).