In this time of economic uncertainty due to the coronavirus and the social distancing required to slow it, our attorneys and staff are helping New Jersey businesses seek financing under the new Federal Small Business Paycheck Protection Program. The basic elements of the program are below. Call us to obtain help. Applications are being accepted starting April 3rd, and funding is limited, so time is of the essence.
Small Business Paycheck Protection Program
The new Paycheck Protection Program by the Federal Government will provide small businesses with funds to meet payroll and benefits costs, payroll taxes, vacation and sick leave payments, rent, mortgage interest, and utilities for up to for up to eight weeks. If the funds are used solely for these expenses and the number of the business’s employees stays the same, the loan can be fully forgiven (it is expected that seventy five percent of the forgiven amount will go to payroll expenses). In other words, the loan is converted to a grant and does not need to be repaid. The requirement can be met by retaining employees or quickly rehiring them by June 30, 2020. If the number of full-time employees is reduced then the forgiveness will be reduced, and a pro rata portion of the loan will need to be repaid. Only one loan may be taken. The non-payroll costs need to have been incurred before February 15, 2020.
All small businesses are eligible for these loans and forgiveness under the Federal Paycheck Protection Program. A small business is defined as one having 500 or fewer employees, and includes not just for-profit small businesses, but nonprofits, veterans organizations, self-employed individuals, independent contractors, sole proprietorships and tribal concerns.
Payroll costs are capped at $100,000 per employee on an annualized basis – ie., that is what will count for the amount of the loan, but employee pay levels are maintained. Forgiveness will be reduced if headcount goes down. Forgiveness will also be reduced if payroll goes down by twenty five percent or more for any employee making $100,000 or less.
Applications for small businesses will start being accepted on April 3, 2020. Applications for independent contractors and self-employed individuals open on April 10, 2020. But because the funding is limited – there is a finite pot of $349,000,000,000 – it is important to act swiftly. We are helping businesses with these applications, but it is important to act now. The program officially closes on June 30, 2020.
Loans must be made through approved SBA 7(a) lenders, or any federally insured depository bank, any federally insured credit union, and any Farm Credit System institution that is participating. Other regulated lenders will be able to make these loans once they are approved and enrolled in the program. In other words, most banks will be able to participate. The terms are the same regardless of the borrower or lender.
The United States Small Business Administration (SBA) has waived its affiliation standards for small businesses in the hotel and food services industries, franchises, or that receive assistance from small business investment companies licenses by the SBA.
It is important that you have full payroll information for the last 12 months, since that it was the amount of the loan will be based on. You will also need supporting documentation, including proof you were in business and operating prior to February 15th, your payroll, year-end financial statements, prior year tax returns, etc.
Applications for forgiveness are made through the lender which is servicing the loan. The interest rate on the portion which is not forgiven is 0.5 percent, and the loan is due in two years. Payments are deferred for six months. There are no prepayment penalties. Personal guarantees are not required.
The borrower will need to certify (ie., swear) that:
- Current economic uncertainty makes the loan necessary to support your ongoing operations.
- The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.
- You have not and will not receive another loan under this program.
- You will provide to the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan.
- Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
- All the information you provided in your application and in all supporting documents and forms is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law.
- You acknowledge that the lender will calculate the eligible loan amount using the tax documents you submitted. You affirm that the tax documents are identical to those you submitted to the IRS. And you also understand, acknowledge, and agree that the lender can share the tax information with the SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews
Because these statements are sworn to the government, it is a felony to make a false representation.
Call us at (973) 890-0004 or email us at email@example.com to obtain help with requesting funding under the Small Business Paycheck Protection Program.