CARES Act Info: Help with Business Expenses
Thank you for continuing to be a valued Constellation customer. As noted in prior communications, we are closely monitoring developments related to the coronavirus (COVID-19) pandemic in support of our customers and business partners. To that end, Constellation has compiled the below FAQs based on information available to us as of April 24, 2020 as a courtesy to your business. To the extent the below information raises other questions for you, we encourage you to work with your legal and financial advisors.
PAYCHECK PROTECTION PROGRAM (PPP) INFORMATION SHEET:
The Paycheck Protection Program (“PPP”), authorized by the CARES Act and administered though the U.S Small Business Administration and Treasury, authorizes forgivable loans to small businesses to pay their employees during the COVID-19 crisis. All loan terms are the same for everyone.
The initial Paycheck Protection Program (“PPP”) that began accepting applications on April 3rd authorized $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. As of April 16th this $349 billion was fully assigned to over 11.6 million individual small businesses. Due to the demand for the program, an additional $310 billion in funding for the PPP was passed by congress and signed by the President on April 24th
Details on the April 24th additional PPP funding:
$310 billion total for Paycheck Protection Program (PPP) loans:
- $250 billion unrestricted for PPP
- $60 billion in PPP set aside for distribution by smaller institutions (such as depository institutions, credit unions and community financial institutions)
- $30 billion for loans made by lenders with assets less than $10 billion
- $30 billion for loans made by lenders with assets between $10 billion and $50 billion
Additional (non-PPP) small business funding from the April 24th Act
$50 billion for Economic Injury Disaster Loans (EIDL)
$10 billion for EIDL Advance grants
$2.1 billion for SBA administrative expenses
All PPP loan terms are the same for everyone.
PPP loan amounts will be forgiven as long as:
- The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and
- Employee and compensation levels are maintained.
Payroll costs are capped at $100,000 on an annualized basis for each employee. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
Loan payments will be deferred for 6 months.
Where can I apply? You can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating. Visit www.sba.gov for a list of SBA lenders.
Who can apply? All businesses – including nonprofits, veterans’ organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors – with 500 or fewer employees can apply. Businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards for those industries (click HERE for additional detail).
For this program, the SBA’s affiliation standards are waived for small businesses (1) in the hotel and food services industries (click HERE for NAICS code 72 to confirm); or (2) that are franchises in the SBA’s Franchise Directory (click HERE to check); or (3) that receive financial assistance from small business investment companies licensed by the SBA. Additional guidance may be released as appropriate.
What do I need to apply? You will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender that is available to process your application by June 30, 2020.
What other documents will I need to include in my application? You will need to provide your lender with payroll documentation.
Do I need to first look for other funds before applying to this program? No. The usual SBA requirement that you try to obtain some or all of the loan funds from other sources is waived (i.e., the Credit Elsewhere requirement).
How long will this program last? Although the program is open until June 30, 2020, apply as quickly as you can because there is a funding cap and lenders need time to process your loan.
How many loans can I take out under this program? Only one.
What can I use these loans for? You should use the proceeds from these loans on your:
- Payroll costs, including benefits;
- Interest on mortgage obligations, incurred before February 15, 2020;
- Rent, under lease agreements in force before February 15, 2020; and
- Utilities, for which service began before February 15, 2020.
What counts as payroll costs? 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.
Does the PPP cover paid sick leave?
Yes, the PPP covers payroll costs, which include employee benefits such as costs for parental, family, medical, or sick leave. However, it is worth noting that the CARES Act expressly excludes qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (FFCRA) (Public Law 116–127). Learn more about the FFCRA’s Paid Sick Leave Refundable Credit online.
How large can my loan be? Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount. That amount is subject to a $10 million cap. If you are a seasonal or new business, you will use different applicable time periods for your calculation. Payroll costs will be capped at $100,000 annualized for each employee.
How much of my loan will be forgiven? You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
You will also owe money if you do not maintain your staff and payroll.
- Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
- Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
- Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.
How can I request loan forgiveness? You can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.
What is my interest rate? 1.00% fixed rate.
When do I need to start paying interest on my loan? All payments are deferred for 6 months; however, interest will continue to accrue over this period.
When is my loan due? In 2 years.
Can I pay my loan earlier than 2 years? Yes. There are no prepayment penalties or fees.
Do I need to pledge any collateral for these loans? No. No collateral is required.
Do I need to personally guarantee this loan? No. There is no personal guarantee requirement. ***However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you.***
What do I need to certify? As part of your application, you need to certify in good faith 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.
Does the PPP cover utility charges?
- Loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made
- Utilities, for which service began before February 15, 2020.
- Payroll costs must be at least 75% of the forgiven amount
Does the PPP cover the supply portion of the utility bill? Utility payments under service agreements for which service began before February 15, 2020 are included as part of the loan forgiveness under PPP.
Under what circumstances would loan forgiveness under the PPP not cover utility charges? Payroll costs must be at least 75% of the loan forgiveness, so to the extent that other non-payroll costs such as rent, utilities, etc. exceed 25% of the total costs, the portion above 25% is not eligible for loan forgiveness.
What is the CARES Act?
The Coronavirus Aid, Relief, and Economic Security (CARES) Act is legislation that went into effect on March 27, in response to the COVID-19 crisis. At $2.2 trillion (more than 10 percent of U.S. GDP), the CARES Act is the most significant piece of federal disaster and economic relief ever passed in American history.
The 880-page bill provides economic aid to individuals, businesses, and industries and additional support for hospitals, health care workers, and other elements of the health care system. Aspect of the bill include rebate checks for individual Americans, expanded unemployment insurance benefits, small business loans, and distressed industries lending.
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