As you navigate through the uncertainty of the global COVID-19 pandemic The Licatesi Law Group is working nonstop to assist and help minimize the disruption and impact on your home or business. In that effort, we want to make you aware of one of the most important opportunities just made available to help stop foreclosure by the recently passed Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).
The CARES Act provides for a new Paycheck Protection Program (“PPP”) that expands the existing Small Business Administration Section 7(a) loan guarantee program for eligible small businesses. The PPP has approximately $349 billion of funding to make loans of up to $10 million dollars per borrower that will be available to eligible borrowers through June 30, 2020. The interest rate on these loans is capped at 4%, and the loans have a maximum maturity date of ten (10) years. These loans will be distributed under the supervision of the SBA, funded directly through participating financial institutions.Borrowers will be eligible for forgiveness of up to 100% of a PPP loan for eligible expenses paid by the borrower from February 15, 2020 through June 30, 2020 (the “Covered Period”).
Final guidelines are not yet available from the SBA and United States Department of the Treasury, but they are expected in the coming days. In the interim, banks are already making preparations to offer PPP loans to clients, and The Licatesi Law Group is able to provide you with some basic information below regarding eligibility, proposed borrowing limitations and documentation requirements. If you envision requesting a PPP loan, we urge you to begin the preparation of the necessary documentation (such as documentation related to your expenses for payroll) now so that your bank may promptly process your request(s) upon the issuance of final guidance.
Applicants for a loan under the PPP may be any small business, business concern, nonprofit organization, veterans organization or eligible tribal business concern if such business was in operation on February 15, 2020 and employs not more than: (i) 500 employees; or (ii) if applicable, the size standard in number of employees established by the SBA for the industry in which the business operates, which may provide up to 1,500 employees depending upon a businesses’ industry (For further information, please visit: SBA Size Standards). Applicants for PPP loans may be self-employed or individual contractors.
PPP Loan Details:
The maximum borrowing amount will be limited to the lesser of: (i) $10 million; or (ii) the sum of (a) 2.5 times the borrower’s average total monthly payroll costs incurred during the one year period prior to the date on which the loan is made, or at the election of the borrower, during the period from March 1, 2019 through June 30, 2019, or at the election of the borrower if it was not operating during the full period, during the period from January 1, 2020 through February 29, 2020, plus (b) if applicable, the outstanding amount of any Economic Injury Disaster Loan (“EIDL”) extended by the SBA to the borrower between January 31, 2020 and the date on which the PPP loan is made available to the borrower to refinance the EIDL.
The interest rate on PPP loans will not exceed 4% annually, and loans will be extended on a nonrecourse basis (no personal guarantees or other collateral will be required). There will be no prepayment penalties on PPP loans.
Allowable Use of Funds:
Borrowers may use PPP loan proceeds during the Covered Period for the following allowable uses: (i) payroll costs; (ii) costs related to the continuation of group health care benefits during periods of paid sick, medical or family leave and insurance premiums; (iii) employee salaries, commissions or similar compensation; (iv) payments of interest on any mortgage obligation (excluding any prepayment or payment of principal on a mortgage obligation); (v) rent; (vi) utilities; and (vii) interest on any other debt obligations that were incurred before the Covered Period.
PPP loan borrowers will be eligible for loan forgiveness in an amount equal to the sum of the following costs incurred and payments made during the Covered Period: (i) payroll costs; (ii) any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation); (iii) any payment of any covered rent obligation; and (iv) any covered utility payment. Levels of loan forgiveness will be limited by certain factors, which include any average employee count reductions or reduction of salary and wage amount reductions during the Covered Period.
Borrowers will need to apply for such loan forgiveness, and such application is expected to include, among other things, documentation verifying the number of full-time employees on payroll, pay rates, payroll tax filings, state income tax, payroll and unemployment insurance filings and documentation verifying payments on covered mortgage and lease obligations, as well as a certification to the lender of the truthfulness and accuracy of such information. If a borrower obtains loan forgiveness, the amount would not be considered taxable for federal income tax purposes.
All payments (principal, interest, and fees) otherwise due under a PPP loan will be deferred for a minimum of 6 months and a maximum of 12 months.
At minimum, documentation related to payroll figures for the periods referenced above will be necessary to process your application for a PPP loan. However, additional information and/or documentation be may required depending on the guidance issued by the SBA and U.S. Treasury Department.
On behalf of all of us at The Licatesi Law Group, we will do everything possible to prevent foreclosure and support your homes and businesses during these turbulent times. Please do not hesitate to reach out and email or speak to either Jeanine Oberster Esq. [email protected] or Michael Licatesi Esq. [email protected].
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