Client Alert: Update on the CARES Act PPP Loans

By Melanie Wiener and Melody Schor

Dear Friends:

Abrams Fensterman, LLP is committed to providing our clients with up to date information and assistance your business needs in order to address Coronavirus-related business concerns. This email provides updates related to the CARES Act Paycheck Protection Program (PPP).

On Thursday, April 2, the SBA and Treasury issued interim final regulations interpreting the CARES Act and Paycheck Protection Program (PPP). These regulations are: located here. Since the passage of the CARES Act, our Covid-19 Small Business Team has been working ardently to interpret and guide you on the rapidly changing aforementioned loan provisions.

If you need assistance in applying for these loans please contact Melanie I. Wiener, Esq. or Melody Schor, Esq. to schedule a consultation with one of our attorneys who is ready to assist you through this difficult time.

The 4.2.2020 Treasury Regulations:

  • Application Deadline: Deadline to apply is June 30, 2020 OR until funds under this program become unavailable. Page 2.
  • PPP “payroll costs” defined: For small businesses, payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees. For an independent contractor or sole proprietor, payroll costs include wage, commissions, income, or net earnings from self-employment or similar compensation. (Section 2(f) Page 10.)
  • Exclusions from the definition of payroll costs (Section 2(g), Page 10-11): (a) Any compensation of an employee whose principal place of residence is outside of the United States; (b) The compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary; (c) Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees; and (d) Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127).
  • Updates on Independent Contractors: Independent contractors do not count as employees for purposes of PPP loan calculations for Small Businesses. Section 2(h), Page 11
  • Interest Rate: The interest rate on a PPP Loan is now one-percent (1%). Section 2(i), Page 11.
  • Term: The maturity on a PPP Loan is 2 years. Section 2(j), Page 12.
  • Recommended Amount to Apply For: Since no “eligible borrower” may receive more than one PPP Loan, it is recommended that you apply for the maximum amount available determined by your payroll costs. Section 2(k), Page 12-13.
  • Signature Requirements: An e-signature or e-consents can be used regardless of the number of owners. Section 2(l), Page 13.
  • Time Frame: The PPP is provided on a “first-come, first-served” basis. Section 2(m), Page 13.
  • Deferment: There will be no principal or interest payments on the PPP loan for the first six months following the date of disbursement of the loan, however interest will continue to accrue (at 1%) during the six-month deferment period. Section 2(n), Page 13.
  • Loan Forgiveness: The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest. Per the regulation, the borrower will not be responsible for any loan payment if the borrower uses all of the loan proceeds for forgivable purposes and employee and compensation levels are maintained. A loan may be forgiven as long as employee salaries are not reduced by more than 25% and the number of employees has not been reduced. 75% of the loan may be attributed to payroll costs whereas 25% may be used to cover nonpayroll costs such as payments of mortgage interest, rent, and utilities. Section 2(o), Page 13-14. The SBA will issue additional guidelines on loan forgiveness in the future.