What You Need To Know Before Applying For Coronavirus Loan Relief

Small business interruption loans from the Paycheck Protection Program of the CARES Act would be available to:

  • Companies and some nonprofits with 500 or fewer employees during the period February 15 through June 30, 2020

The maximum loan amount of $10 million could be used for:

  • Payroll and employee-related costs, debt, rent and utility payments

Use of these loans for payroll is limited to:

  • Compensation of $100,000 / employee, independent contractor or sole proprietor maximum maturity of 10 years interest rate 4% no personal guarantee 

These loans are to be administered by banks and credit unions:

  • Borrowers should turn to their bank to apply these loans could qualify for loan forgiveness any debt forgiveness will not be subject to federal income tax

Below is a detailed analysis of the provisions related to the availability of loans to businesses, nonprofit and other organizations.

Paycheck Protection Program

These loans are to be administered by banks and credit unions: to apply go to your bank website.

Loans are limited to the lesser of:

  • The sum of average monthly payroll costs for the one-year period ending on the date the loan was made multiplied by 2.5, and any disaster loan from the SBA taken out after January 31, 2020 that has been refinanced into a paycheck protection loan, or $10 million

Payroll costs, in turn, are the sum of the following:

  • wages, commissions, salary or compensation to independent contractors tips vacation, parental, family, medical or sick leave allowance for dismissal or separation group health care benefits retirement benefits state or local tax assessed on the compensation of employees

Forgiveness of Paycheck Protection Loans

The sum of the following payments made by the borrower during the 8-week period beginning on the date of the loan is forgivable:

  • Payroll costs
  • Mortgage interest
  • Rent
  • Utility payments

To seek forgiveness a borrower should submit to the lender an application including:

  • Number of employees pay rates cancelled checks showing: mortgage, rent, or utility payments. Loan forgiveness will not create taxable income payments due on the remaining balance will not be due for six months

There is a provision, however, that reduces the amount that may be forgiven if the employer either:

  • Reduces its employees during the 8-week covered period.
  • Reduces the salary or wages by more than 25% during the covered period.
  • If the employer rehires or increases the employee’s pay by June 30, 2020, this reduction is avoided.

Economic Injury Disaster Loans and Emergency Grants

The CARES Act also expands access to Economic Injury Disaster Loans (EIDLs) and include not only:

Apply here: https://www.sba.gov/page/disaster-loan-applications

  • businesses with fewer than 500 employees, but also sole proprietors and ESOPs.
  • Loans made before December 31, 2020 no personal guarantee will be required on loans below $200,000. 
  • EIDL program is expanded to extend to all entities with no more than 500 employees:
    • allows a disaster loan to be taken out between January 31, 2020 and the date on which a paycheck protection loan is available for reasons other than paying payroll costs, for example working capital
    • creates a new emergency grant to allow a business that has applied for a disaster loan to get an immediate advance of up to $10,000 
    • the advance can be used for payroll and is not required to be repaid
    • for those with existing 7(a) loans the SBA will pay six months of principal, interest and fees on qualifying loans

Employee Retention Credit

The CARES Act provides a quarterly credit against certain employer payroll taxes available to employers that:

  • Have experienced a full or partial suspension by government order in their operations and decline in gross receipts due to COVID-19, OR employer’s gross receipts are below 50% of the comparable quarter in 2019 amount of the credit is 50% of qualified wages, not to exceed $10,000 per quarter per employee.
  • Once employer’s revenues go above 80% of a comparable quarter in 2019, employer no longer qualifies after the end of that quarter.
  • wages are payments to employees while they are unable to work due to the operational or financial difficulties.
  • This credit is unavailable to employers that have received a small business interruption loan or paycheck protection program may be limited if the employer took the credit for paid family and medical leave under the TCJA. This payroll deferral only applies to the employer, not the employee, portion of FICA.

Payroll Tax Deferral

CARES Act defers payment of payroll tax liabilities incurred for the remainder of the year:

  • For the employer portion of the tax: 50% of 2020 payroll tax liability will be due by December 31, 2020
  • The remaining 50% due by December 31, 2022
  • Payments are not subject to underpayment penalties
  • This payroll deferral only applies to the employer, not the employee, portion of FICA

 

See the video to know the complete information about how to apply this relief loans

 

Email us or call us to help you complete your tax returns and your business’s as well as the financial statements to apply to this funding.

Remember that the requirements are essential for the application of these loans, contact us to help you keep your documentation up to date and give you any consultation so you can enjoy this benefit.

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