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COVID-19: Legal education & small business resources

The response to COVID-19 has necessitated so many changes in how our partners do business and we at ConnectWise want to provide as many resources as we can to help you navigate those changes. Here, you’ll find regularly updated, educational information on legislative measures and how they might impact your business, as well as other resources to aimed to support SMB operations. Have questions or need more help? Email us at Talent@ConnectWise.com

The Small Business Administration: Information from the SBA on what they are doing to help small businesses during the COVID-19 Pandemic.

Forbes’ Curated List of Small Business Relief Programs: A regularly updated list of resources and programs that support small businesses during this, from the staff at Forbes.

New York State Small Business Program: For partners in New York, programs and resources available.

Australia Small Businesses: Resources and tips from CPA Australia.

COVID-19 Loan and Relief Resources for Small Businesses blog post from Gusto.

NOTE TO U.S. PARTNERS: The COVID-19 pandemic is rapidly evolving and may change on a daily basis. The information summarized herein is for the general education and knowledge of our partners. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal or tax issue. The laws of each partner jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel in your area.

On March 18, 2020, the Families First Coronavirus Response Act was enacted into law and the provisions below go into effect April 2, 2020. Certain key provisions of interest to our partners are highlighted below.

Emergency Family and Medical Leave Expansion Act (FMLA+)

Applicability: Employers with under 500 employees.

Employees: Employed at least 30 days; provides up to 12 weeks of leave "because of a qualifying need related to a public health emergency" which is when the employee is unable to work (or telework) due to caring for a child under 18 if their school or daycare has been closed, or the child care provider is unavailable because of an emergency with respect to COVID-19 declared by federal, state or local authorities.

Paid vs Unpaid Leave: The first 10 days of leave are unpaid (but see Paid Sick Leave below), but an employee may elect to substitute any accrued paid vacation leave, personal leave or medical/sick leave.

If leave is more than 10 days, it must be paid at two-thirds (67%) of employee's regular rate of pay based on the number of hours the employee normally is scheduled to work as determined by the Fair Labor Standards Act. In all cases, an employer need not pay an employee more than $200 per day and $10,000 in the aggregate.

Employees are required to provide notice as soon as practicable when the need for leave is foreseeable.

Return to Work: Generally, employers with 25 or more employees must restore employees to their positions following their return. Employers with less than 25 employees also must reinstate employees unless certain conditions are satisfied (i.e., the employee’s position does not exist following the period of leave due to economic conditions or other changes in operating conditions which affect employment and are caused by a public health emergency during the leave period, where the employee is offered a substantially equivalent position, or where the employer could not provide a substantially equivalent position but the employee remains on a recall list for one year after the leave).

Exemptions: The U.S. Department of Labor (DOL) will have the authority to exempt businesses with fewer than 50 employees from having to provide emergency leave if doing so would jeopardize the viability of the business. In addition, an employer of an employee who is a healthcare provider or emergency responder may elect to exclude that employee from the leave provisions provided by the Act. Employers with fewer than 50 employees also appear exempt from private suits brought by employees. However, they are still subject to enforcement actions by the DOL.

Effective Date of the Law: The Emergency Family and Medical Leave Expansion Act is scheduled to expire on Dec. 31, 2020 and goes into effect on April 2, 2020.

Emergency Paid Sick Leave Act

Any employee that has been employed for at least 30 days, is entitled to paid sick leave for the following situations:

1. The employee is subject to a federal, state or local quarantine or isolation order related to COVID-19. (full pay, capped at $511 per day per employee ($5,110 aggregate).

2. The employee has been advised by a healthcare provider to self-quarantine because of concerns related to COVID-19. (full pay, capped at $511 per day per employee ($5,110 aggregate).

3. The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis. (full pay, capped at $511 per day per employee ($5,110 aggregate).

4. The employee is caring for an individual who is subject to an order as described in subparagraph (1) or has been advised as described in paragraph (2). (2/3 pay, capped at $200 per day/$2,000 aggregate).

5. The employee is caring for a child if the school or daycare has been closed, or the childcare provider is unavailable, because of COVID-19 precautions. (2/3 pay, capped at $200 per day/$2,000 aggregate).

6. The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor. (2/3 pay, capped at $200 per day/$2,000 aggregate).

Full time employees are entitled to up to 80 hours of paid sick leave, and part-time employees are entitled to a number of hours equal to the number of hours that such employee averages over a two-week period.

The paid sick days required by the new law must be offered in addition to any existing leave benefits and employers are not allowed to change their policies after enactment to avoid the new requirements.

While not explicitly stated in the Act, it appears that this paid time off can be used during the otherwise unpaid 10 days of FMLA leave described in the FMLA Leave section above, such that an employer would be responsible for up to approximately 12 weeks of paid leave total (at least 10 of which would be at 2/3 the employee’s regular rate of pay).

Employees may use paid sick leave under the Act prior to any existing paid time off entitlements accrued by the employee.

Employers may exclude employees who are healthcare providers or first responders from the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act..

The law expires on Dec. 31, 2020 and goes into effect on April 2, 2020.

Tax Credits for Paid Leave – Employer Benefits

To offset the costs of these two new rules on FMLA Leave and Sick Pay, the law created employer tax credits and exemptions from employer paid Social Security taxes. These credits are dollar-for-dollar credits based on the wages paid but are limited by the daily and aggregate caps. Employers will receive a refundable tax credit (against the employer portion of Social Security taxes) for the amounts required to be paid to employees as described in the FMLA Leave and Paid Sick Leave sections above, up to specific per-employee maximum per-day amounts (up to $200 per day for FMLA leave and up to $200 or $511 per day for paid sick leave, depending on the reason for the leave) and specific per-employee maximum aggregate amounts (up to $10,000 for FMLA leave and up to $5,110 for paid sick leave).

The employer portion of Social Security taxes is not imposed on the amounts required to be paid to employees. Although Medicare taxes are imposed on such amounts, the employer portion of Medicare taxes is also creditable against the employer portion of Social Security taxes and is otherwise refundable.

There will be a time lag between when the leave wages are paid and when the employer receives the cash benefit of the credits.

Employers also receive a credit for certain amounts paid or incurred to provide and maintain a group health plan, to the extent allocable to the qualified family leave wages or qualified sick leave wages as determined by Treasury.

Employers may retain the full amount of the Payroll Tax Credit from the payroll taxes they are otherwise required to withhold and/or pay to the Internal Revenue Service (“IRS”) (i.e., withheld federal income taxes, employee share of Social Security and Medicare taxes and employer share of Social Security and Medicare taxes, in each case, with respect to all employees (and not just employees who have taken PSL or FMLA+)). If there are not sufficient payroll taxes to cover the Payroll Tax Credit, employers will be eligible to receive a refund from the IRS by filing a request for an accelerated payment from the IRS for the difference. The IRS expects to process these requests within two (2) weeks or less.

DOL will be issuing a temporary non-enforcement policy that provides a period of time for employers to come into compliance with the above laws. Under this policy, the DOL will not bring an enforcement action against any employer for violations of the above laws so long as the employer has acted reasonably and in good faith to comply with the above laws. The DOL will instead focus on compliance assistance during a 30-day period.

Please contact your tax professional to ensure that you are taking advantage of all available tax credits.

Posting Notice: By April 1, 2020, employers are required to post, and keep posted, in conspicuous places on the premises of the employer, a notice, to be prepared or approved by the Secretary of Labor, of the requirements described in the Response Act. Since many employees are now teleworking due to COVID-19, employers may satisfy this posting requirement by emailing or direct mailing the notice to employees or posting the notice on an employee information internal or external website. The model notice is available at https://www.dol.gov/sites/dolgov/files/WHD/posters/FFCRA_Poster_WH1422_Non-Federal.pdf

Termination/Furloughs

Although not specifically addressed in the new law, if an employee becomes eligible under the law while actively working, it is unlikely that an employer can lawfully terminate the employee’s employment solely to prevent the employee from receiving the COVID-19 FMLA and Paid Sick Leave benefits.

However, if there are legitimate business reasons for the termination of employment, such as the termination of employment of all employees in a specific department or the permanent closure of a facility, an employer may be able to terminate an employee who is taking a protected leave.

The law does not prohibit terminations of employment for legitimate business reasons. Furthermore, furloughed employees are not eligible for benefits under these acts.

COVID-19 Testing Costs

All employer health plans must cover the cost of COVID-19 testing for plan participants (whether employees or their covered dependents) without any cost-sharing (such as deductibles, copayments or coinsurance).

Employers with self-insured plans will experience an increase in costs under their health plans to pay for this testing without any cost-sharing. Employers with fully insured health plans should not have any immediate increased costs but may see increases in premium costs related to the testing upon the health plan renewal.

FAQ’s

1. If an employee is home with his or her child because the school or place of care is closed, or childcare provider is unavailable, does the employee get PSL, FMLA+, or both?

The employee may be eligible for both types of leave, but only for a total of 12 weeks.

2. Can an employer deny an employee PSL if it already provided such leave to an employee before April 1, 2020 or if the employee uses other types of paid sick leave under State or local law or under the employer’s policy?

No, PSL is a new leave requirement that is effective beginning on April 2, 2020 and is in addition to other leave provided under Federal, State, or local law, an applicable collective bargaining agreement or an employer’s existing policy.

3. What records must an employer keep when an employee takes PSL or FMLA+?

If they intend to claim a Payroll Tax Credit, the employer should retain appropriate documentation and consult IRS applicable forms. If an employee takes FMLA+, the employer may also require the employee to provide any additional documentation in support of such leave, to the extent permitted under the FMLA, including notice of the school closure from a government, school or day care website.

4. May the employee take PSL intermittently?

If the employee is teleworking and the employer allows it, then yes. If the employee is not teleworking and the PSL is taken in connection with a school closure or unavailability of childcare and the employer agrees, then yes. If the employee is not teleworking and takes PSL for any other reason, then PSL cannot be taken intermittently; in such event, the employee must continue to take PSL until the employee either (1) uses the full amount of PSL or (2) no longer has a qualifying reason for taking PSL.

5. If the employer closed the worksite on, before or after April 1, 2020, does it have to provide PSL and FMLA+?

No (but see Q&A 6). If the employer sent the employees home and stops paying them because it does not have work for them to do, the employees will not get PSL or FMLA+, but the employee may be eligible for unemployment insurance benefits (unless the employer is paying the employees pursuant to a paid leave policy or State or local requirements). This is true whether the employer closes the worksite for lack of business or because it is required to close pursuant to a Federal, State or local directive.

6. If the employer closes the worksite while an employee is on PSL or FMLA+, what happens?

The employer must pay for any PSL or FMLA+ used by the employee before the employer closed. As of the date the employer closes the worksite, the employee is no longer entitled to PSL or FMLA+, but the employee may be eligible for unemployment insurance benefits (unless the employer is paying the employees pursuant to a paid leave policy or State or local requirements).

7. If the employer is open, but places employees on furlough on or after April 1, 2020, can the employees receive PSL or FMLA+?

No, if the employer furloughs employees because it does not have enough work or business for the employees, the furloughed employees cannot take PSL or FMLA+. The furloughed employees may be eligible for unemployment insurance benefits (unless the employer is paying the employees pursuant to a paid leave policy or State or local requirements)

8. If the employer reduces the scheduled work hours of employees, can the employees use PSL or FMLA+ for the hours that the employees are no longer scheduled to work?

No, because the employees are not prevented from working the hours due to a COVID-19 qualifying reason, even if the reduction in hours was somehow related to COVID-19. An employee may, however, take PSL or FMLA+ if a COVID-19 qualifying reason prevents the employee from working his or her full-time schedule; in such case, the amount of leave will be based on the work schedule before it was reduced.

9. May employees use an employer’s preexisting leave entitlements to ‘top-up’ PSL and FMLA+ payments by taking both the preexisting leave and either PSL or FMLA+ concurrently?

No, unless both the employer and the employee agree to permit such usage. Even if both the employer and employee agree, the employer will not receive a Payroll Tax Credit for any such ‘top-up’ payments. Employers who have preexisting FMLA policies that permit the substitution of paid leave for unpaid FMLA and who do not want to permit such substitution for FMLA+, should consider informing employees of this point in conjunction with posting the Response Act model notice.

10. Do employees have a right to return to work after taking PSL or FMLA+?

Generally, yes (but special rules apply for employers with fewer than 25 employees as discussed below). The Response Act requires employers to provide the same (or a nearly equivalent) job to an employee who returns to work following leave. The employer is prohibited from firing, disciplining, or otherwise discriminating against employees because they used PSL or FMLA+. The employee is not protected, however, from employment actions, such as layoffs, that would have affected the employee regardless of whether the employee took PSL or FMLA+. This means, the employer can lay off employees for legitimate business reasons. Employers also may refuse to return employees to work if they are highly compensated “key” employees as defined under the FMLA.

11. Do employees have a right to return to work after taking PSL or FMLA+ if they work for an employer with fewer than 25 employees?

Generally, yes, unless the employee’s position no longer exists due to economic or operating conditions due to COVID-19 reasons and affecting employment, and the employer makes reasonable efforts to restore the employee to the same or an equivalent position, and makes reasonable efforts to contact the employee if an equivalent position becomes available for up to one (1) year following the leave.

12. Do employees qualify for PSL or FMLA+ even if they have already used some or all of the FMLA leave to which they were entitled under the FMLA?

Eligible employees are entitled to take PSL regardless of how much leave the employee has taken under the FMLA. If the employer was subject to the FMLA before April 1, 2020, then the employee’s FMLA+ may be limited depending on how much regular FMLA leave the employee has taken during the 12-month period the employer uses for FMLA leave. The employee may only take a total of 12 weeks of leave for FMLA and FMLA+.

SBA Payroll Protection Program

UPDATES ON CARES ACT PASSED FRIDAY MARCH 27, 2020

Under the CARES Act recently enacted into law on March 27, 2020, small businesses will have financial assistance options soon. The Small Business Administration has been directed to fund new loans to small businesses that will be partially or fully forgivable if proceeds are spent on qualifying expenses. These loans will be offered and administered by banks participating in the SBA program. While these loans are not yet available, they will become available in coming weeks after the SBA provides guidance to the banks participating in the program. Thereafter, these special loans should be available to qualifying small businesses until June 30, 2020.

If you are interested in applying for a loan under this new program, we encourage you to reach out to a bank participating in SBA programs to discuss your options. A list of the 100 most active SBA qualified banks can be found at the following link: https://www.sba.gov/article/2020/mar/02/100-most-active-sba-7a-lenders.

While the final parameters, terms and conditions of this loan program will be determined by the SBA and banks participating in this program, highlights of the expected SBA loan program are outlined below.

Overview

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted into law and provides for a $2.2 trillion stimulus package providing aid for individuals, states and businesses impacted by COVID-19. The CARES Act authorizes the Small Business Administration (the “SBA”) to provide loan guarantees for up to $349 billion in loan commitments under the SBA’s 7(a) program, through the new “Paycheck Protection Program” under which loans may be forgiven.

Covered Period

Paycheck Protection Program (“PPP”) loans will be available for the period beginning on March 27, 2020 through June 30, 2020. The SBA is expected to issue guidance the week of April 6.

Eligibility – Size Test

Eligible business are as follows:

  • A business that employs not more than the greater of (i) 500 employees and (ii) if applicable, the size standard in assigned to its primary industry NAICS code by the SBA;
  • A business that falls within NAICS Code 72 (i.e., a business in the accommodation and food services sector);
  • provided that such business does not have 500 or more employees per single physical location; or
  • A business that does not meet the employee test can still meet the revenue test assigned for its industry NAICS code by the SBA.

Employees generally includes individuals employed on a full-time, part-time or other basis.

Eligibility – Affiliation

For purposes of determining the size of a business, a business must include not only itself, but also its affiliates.

Affiliates are determined under current SBA regulations, which provide that control/affiliation is a facts and circumstances test that considers elements of affirmative and negative control, in addition to ownership. Parties with significant equity stakes, negative covenants, board seats, the right to block a quorum, and other shareholder or contractual rights generally are affiliates, even they do not have a majority of the voting securities or of the board. In certain circumstances, SBA affiliation can be created by contract or common business interest without any equity ownership.

Under the CARES Act, these affiliation rules are relaxed if the business: (i) falls within NAICS Code 72; (ii) is a franchise with a code assigned by the SBA; or (iii) receives financial assistance from a small business investment company.

Eligibility – Other Considerations

The CARES Act expands the term “business” to include non-profit organizations, veterans organizations, entities owned in whole or in part by an Indian tribal organization, sole proprietorships and independent contractors.

A recipient of an SBA economic injury disaster loan (“EIDL”) made between January 31, 2020 and the date covered loans are available under the CARES Act for a purpose other than paying payroll costs is still eligible for a covered loan.

Businesses who currently have an EIDL loan related to COVID-19 are eligible to apply for a PPP loan, with an option refinance the EIDL loan into a PPP loan; however, the EIDL amount will be subtracted from the amount forgiven under the PPP.

Businesses who currently have an EIDL loan that is not related to COVID-19 are also eligible to apply for a PPP loan, but cannot refinance their EIDL loan into a PPP loan.

Maximum Loan Amount

Lesser of (i) 2.5x TTM average monthly payroll costs* plus any outstanding amount under a pre-existing economic injury disaster loan made on or after January 31, 2020 and before the CARES Act SBA loans are available and (ii) $10 million. There are alternate measurement periods for new and seasonal businesses.

Allowable Use of Proceeds

Loan proceeds may be used to pay payroll costs, rent, utilities, certain group healthcare benefits, and interest on any debt (including mortgages) which were incurred prior to February 15, 2020.

Interest Rate

Maximum interest rate of 4% per annum.

Guarantee, Collateral and Recourse

No personal guarantees.

No collateral requirements.

No recourse against any individual shareholder, member or partner of an eligible recipient of a loan for nonpayment, except to the extent that loan proceeds are used for unauthorized purposes.

Eligible Forgiveness Amount

A loan will be eligible for forgiveness in an amount not to exceed the sum of permitted payroll costs, interest payments on mortgages existing before February 15, 2020, rent with respect to leases in place before February 15, 2020, and payments for utilities for which service began before February 15, 2020, in each case incurred or paid within 8 weeks after the date the loan was originated.

The amount of forgiveness may not exceed the principal of the loan (i.e., interest will not be forgiven).

The forgiven principal amount is non-taxable.

Reduction in Eligible Forgiveness Amount

Based on Number of Employees**: The eligible forgiveness amount will be reduced by the percent determined by dividing (i) the average monthly number of full-time employees from February 15, 2020 through the 8-week period after the loan was originated by, (ii) at applicant’s election, the average number of full-time employees from February 15, 2019 to June 30, 2019 or January 1, 2020 to February 29, 2020.

Based on Reduction in Compensation: Eligible forgiveness amounts also will be reduced dollar-for-dollar to the extent an individual’s total compensation for the period February 15, 2020 through the 8-week period after the date the loan was originated is reduced by more than 25% when compared to such individual’s total compensation for the most recent calendar quarter.

This reduction is disregarded to the extent any employees are re-hired and any salaries are returned to prior levels by June 30, 2020.

No Prepayment Penalty

Loans will not have any prepayment penalties.

Deferment

Lenders must defer payments for at least six months and up to one year.

Maturity

To the extent not forgiven, loans will have a maximum maturity of 10 years from the date on which the applicant applies for loan forgiveness.

Application Submission

Applications will need to be submitted to SBA-approved 7(a) lenders. A list of such lenders, application forms, required certifications, and an outline of the application process should be forthcoming from the SBA in the next two weeks.

Businesses will be required to certify in good faith (i) that the loan is necessary to support the ongoing operations of the business due to the uncertainty of current economic conditions caused by COVID-19; (ii) that the funds will be used to retain workers and maintain payroll, lease and utility payments; and (iii) are not receiving (and have not applied for) duplicative funds for the same uses from another SBA program.

Application Preparation

To seek loan forgiveness, businesses must submit an application to the lender that the originated the covered loan that will include:

  • Documentation verifying the number of full-time equivalent employees on payroll and pay rates for the applicable periods, including payroll tax filings; and state income, payroll and unemployment insurance filings; and
  • Documentation verifying payments on mortgage obligations, lease obligations and utilities, including cancelled checks, payment receipts, transcripts of accounts or other documents.

Additional Guidance

The SBA is expected to issue additional guidance and applications would then likely be accepted beginning in mid- to late-April 2020.

 

The SBA website can be accessed here.

The SBA publishes the size standards per NAICS code here.

The SBA also publishes guidance regarding size and affiliate rules here.

Information regarding franchise codes can be found here.

Information regarding the list of the most active SBA lenders can be found here.

* “Payroll costs” exclude (i) any compensation above $100,000 per annum for any person (pro-rated for the period 2/15/20 through 6/30/20); (ii) federal wage withholding taxes and certain federal employment taxes for the period 2/15/20 through 6/30/20; (iii) compensation of an employee whose principal place of residence is outside of the U.S.; (iv) qualified sick leave wages for which a credit is allowed under the Families First Coronavirus Response Act; and (v) qualified family leave wages for which a credit is allowed under the Families First Coronavirus Response Act.

** “Employee” for purposes of the reduction in eligible forgiveness amount is defined as any employee who did not receive compensation at an annualized rate of pay during any single pay period of more than $100,000 in 2019.

Local Assistance: Use the SBA’s Local Assistance Directory to locate the office nearest you.

Frequently Asked Questions

PROGRAM OVERVIEW

1. What is the SBA Payroll Protection Program (“PPP”)?

The PPP is part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which authorizes the Small Business Administration (the “SBA”) to provide loan guarantees for up to $349 billion in loan commitments under an expansion of the SBA’s existing 7(a) program.

2. If I am interested in a PPP loan, who should I call?

PPP loans will be offered and administered by existing 7(a)/SBA lenders and new lenders approved by the SBA to participate in the SBA 7(a) program (in each case, “Approved Lenders”). A list of the 100 most Approved Lenders can be found here.

3. How do I apply for a PPP loan?

Applications will need to be submitted to Approved Lenders but are not yet available. We expect the program to be up and running shortly, after the SBA issues guidance to Approved Lenders (expected by the end of the week of April 1, 2020) and the SBA or the Approved Lenders have produced applications and forms, shortly thereafter.

In the meantime, if you believe you may be eligible for a loan, you may want to contact an Approved Lender to begin the “know your customer” process required for all bank relationships.

4. What will a PPP loan require me to prepare or certify?

The CARES Act provides minimum documentation and certification requirements, but the details and any additional requirements will be determined by some combination of the SBA and the Approved Lenders. As discussed below, we believe one of the additional certifications will be with respect to your meeting the size test (as further described in the next question). This is a standard certification in SBA programs.

5. If I receive a PPP loan, will I lose any tax benefits provided under the CARES Act?

If you receive a PPP loan, you will not be eligible for the refundable employee retention tax credit provided for under the CARES Act. If all or a portion of your PPP loan is forgiven, you will not be eligible to defer payment of the employer’s share of Social Security taxes during 2020, as otherwise allowed under the CARES Act.

LOAN ELIGIBILITY

6. Who is Eligible for PPP loans?

To be eligible for a PPP loan, you must meet the standard SBA 7(a) size test, or one of the two size tests provided in the CARES Act.

You will be eligible if you have (together with your affiliates, unless affiliate rules do not apply (see question 8 below)):

  1. i. employees (including non-U.S., part-time, and/or temporary employees) of no more than the greater of (a) 500, or (b) such higher number of employees, if any, as is assigned to your primary North American Industry Classification System (“NAICS”) code on the SBA Table of Size Standards found here (the “SBA Size Standards”); OR
  2. ii. a primary NAICS code which begins with 72 (accommodations and food services) and no more than 500 employees per physical location; OR
  3. iii. in the case where gross receipts (rather than number of employees) are reflected as the size standard by the SBA for the industry in which the business is in, gross receipts of equal to or less than the amount (if any) assigned to your primary NAICS code in the SBA Size Standards, and 500 employees.

7. What types of entities are covered under the CARES Act?

The CARES Act expanded the term “business” to include 501(c)(3) non-profit organizations, veterans’ organizations, entities owned in whole or in part by an Indian tribal organization, sole proprietorships and independent contractors that meet the size tests enumerated above. The CARES Act specifically does not waive the affiliation test for non-profit organizations and veterans’ organizations.

LOAN TERMS

8. What is the maximum PPP loan amount?

The amount of a PPP loan is relatively small, with the maximum amount being the lesser of: (a) 2.5x average trailing 12-month monthly payroll costs plus the outstanding amount under an outstanding SBA economic injury disaster loan (EIDL) made from January 31, 2020 to the date a PPP loan is originated, and (b) $10 million.

9. How can I use PPP loan proceeds?

PPP loan proceeds may be used for: (i) payroll costs (defined above), commissions, and similar compensation; (ii) costs related to the continuation of group healthcare benefits during periods of paid sick, medical or family leave, and insurance premiums; (iii) rent payments and utilities; or (iv) interest only on mortgages, and interest only on other debt obligations incurred before February 15, 2020.

10. Will my PPP loan be forgiven?

Subject to the limitations described below, the principal amount of a PPP loan (but not interest) can be forgiven to the extent they have been used for the following, to the extent incurred and paid during the eight (8) week period after the PPP loan is made: (i) payroll costs (as defined above); (ii) interest payments on mortgage obligations that are incurred before February 15, 2020; (iii) rent payments under leases in force before February 15, 2020; or (iv) utility payments where service began prior to February 15, 2020.

Additional wages paid to tipped employees are also eligible for forgiveness to the extent applicable.

11. What are the limitations on PPP loan forgiveness?

To incentivize the retention of employees at existing compensation levels, the amount of PPP loan forgiveness will be reduced by:

  1. i. Employee reduction measured by comparing (a) the average number of full-time equivalent employees from February 15, 2020 through the 8-week period after the loan was originated to (b) the average number of full-time equivalent employees during either the period between February 15, 2019 and June 30, 2019 or the period between January, 2020 and February 29, 2020, at your election; plus
  2. ii. The amount of any reduction in total salary or wages of any full-time employee equivalent from February 15, 2020 through the eight (8) week period after which the PPP loan is originated that is in excess of 25% of the total salary or wages of the full-time equivalent employee during the most recent full quarter during which the full-time equivalent employee was employed.

The limit on forgiveness will be disregarded to the extent of employees re-hired and applicable salaries returned to prior levels by June 30, 2020.

12. Will I need collateral to get a PPP loan? What about guarantees?

No personal guarantees or collateral will be required for a PPP loan, and there will be no recourse against any individual shareholder, member or partner for non-payment, except to the extent PPP loan proceeds are not used for permitted purposes.

13. What are the other terms of the PPP loans?

The other terms of the PPP loans, including underwriting standards, will be determined by some combination of the SBA and the Approved Lenders. The CARES Act does provide some minimum terms, including that maximum interest rate will be 4% per annum, loans will not have any prepayment penalties, payments must be deferred for at least six months (and up to one year), and any unforgiven portion of the PPP loans will have a maximum maturity of 10 years from the date on which the applicant applies for loan forgiveness.

14. What if my company is sold while a PPP loan is outstanding?

While SBA 7(a) loans typically must be repaid in connection with a change in control, absent SBA guidance or specific provisions in the PPP loan agreements, this will remain unclear.

15. What if my questions are not answered here?

You may need to wait to see if your question is addressed in the SBA’s published guidance. Remember, much of the PPP program is brand new and cannot be referenced to existing SBA regulations or practices. Soon after the SBA guidance, we believe the Approved Lenders, many of whom will have access to the SBA for questions, should be able to help you through the application process. We encourage you to start a dialogue with an Approved Lender as soon as possible for them to assist you as the development and roll-out of the PPP program progresses.

1. “Payroll costs” exclude (i) any compensation above $100,000 per annum for any person (pro-rated for the period 2/15/20 through 6/30/20); (ii) federal wage withholding taxes and certain federal employment taxes for the period 2/15/20 through 6/30/20; (iii) compensation of an employee whose principal place of residence is outside of the U.S.; (iv) qualified sick leave wages for which a credit is allowed under the Families First Coronavirus Response Act; or (v) qualified family leave wages for which a credit is allowed under the Families First Coronavirus Response Act. While there are residual questions about whether the total cost of anyone making over $100,000 needs to be excluded, the prevalent view seems to be that only the cost over $100,000 needs to be excluded. In addition, the treatment of non-U.S. employees for this formula should be addressed by the SBA guidance or would be a question for your Approved Lender. Calculations vary slightly if you were not in operation between February 15, 2019 and June 30, 2019.

2. You will need to apply for forgiveness and the CARES Act lists detailed documentation required when seeking forgiveness. You should ask your Approved Lender what will be required to ensure all documentation is retained and can be easily produced.

3. For example, if you had an average of 99 full-time employees from February 15, 2020 through the 8-week period after the loan was originated and an average of 100 full-time employees during the applicable reference period, then the borrower would only be entitled to 99% of the loan forgiveness that would otherwise be available. There also are special rules for seasonal employers.

4. This portion of PPP loan forgiveness takes into account only employees who did not receive, during any single pay period in 2019, wages or salary at an annualized rate of pay in an amount more than $100,000.

To aid our partners’ in this uncertain time, we are actively gathering, creating, and updating tools, tips, and resources on how to get through COVID-19 as a business. To view product tips, blogs, articles, webinars, videos, and other tools, visit ConnectWise.com/RemoteWork.