Part of the CARES Act approved and signed on March 27, 2020
Covered loan is a loan guaranteed under paragraph (36) of section 7(a) of Small Business Act. Eligible participants are employers with less than 500 employees including sole proprietors, independent contractors and eligible self-employed individuals.
A recipient of a covered loan shall be eligible for forgiveness of indebtedness on a covered loan in an amount equal to the sum of the following costs incurred and payments made during the covered period (8-week period beginning on the date of the origination of a covered loan):
1) Payroll costs
a) salary, wage, commission, or similar compensation;
b) payment of cash tip or equivalent
c) payment for vacation, parental, family, medical, or sick leave;
d) allowance for dismissal or separation;
e) payment required for the provisions of group health care benefits, including insurance premiums;
f) payment of any retirement benefit; or
g) payment of State or local tax assessed on the compensation of employees; and
h) the sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as prorated for the covered period; and
i) SHALL NOT include the compensation of an individual employee in excess of annual salary of $100,000 as prorated for the covered period, social security taxes, compensation to employees living outside of US and sick leave wages or FMLA wages covered by Families First Coronavirus Response Act.
2) Any payment of interest on any covered mortgage obligation defined as any indebtedness or debt instrument incurred in the ordinary course of business that—(A) is a liability of the borrower; (B) is a mortgage on real or personal property; and (C) was incurred before February 15, 2020)
3) Any payment on any covered rent obligation defined as rent obligated under a leasing agreement in force before February 15, 2020
4) Any covered utility payment defined as payment for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020
Maximum covered loan shall be the lesser of:
1) Sum of average total monthly payments by the applicant for payroll costs incurred during the 1 year period before the date on which the loan is made multiplied by 2.5 and the outstanding amount of a loan under subsection (b)(2) that was made during the period beginning on January 31, 2020 and ending on the date on which covered loans are made available to be refinanced under the covered loan; OR
If the eligible recipient was not in business during the period between February 15, 2019 and June 30, 2019, then use the monthly average from January 1, 2020 to February 29, 2020.
The loan proceeds may be used for the same items that lead to loan forgiveness.
LIMITS ON AMOUNTS OF FORGIVENESS
Shall not exceed principal.
Will be reduced based on reduction in number of employees. Multiply the forgiveness amount by the ratio of average # of full-time equivalent employees per month of covered period to either the average # of full-time equivalent employees February 15, 2019 to June 30, 2019 or January 1, 2020 to February 29, 2020. There is a different calculation for seasonal employees.
Will be reduced based on reduction of wages of any employee during the covered period that is in excess of 25% of total wages of the employee during the most recent full quarter during which the employee was employed before the covered period. Excluded employees: any employee who received during any single pay period in 2019, wages annualizing to a rate of pay more than $100,000.
Forgiveness amount increased for additional wages paid to tipped workers.
The amount of loan forgiveness shall be determined without regard to a reduction in number of full time equivalents or reduction in wages during the period of February 15, 2020 and ending on the date that is 30 days after the date of enacting bill if the reduction(s) is/are eliminated by June 30, 2020.
Documentation will have to be presented to be approved for forgiveness.
OTHER FACTS ABOUT COVERED LOANS:
1) Non-recourse if proceeds used for purposes authorized
2) Fees will be waived
3) Remain eligible for other loans
4) No personal guarantee required
5) No collateral required
6) BORROWER REQUIREMENTS.— CERTIFICATION.—An eligible recipient applying for a covered loan shall make a good faith certification— a) that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient; b) acknowledging that funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments; c) that the eligible recipient does not have an application pending for a loan under this subsection for the same purpose and duplicative of amounts applied for or received under a covered loan; and d) during the period beginning on February 15, 2020 and ending on December 31, 2020, that the eligible recipient has not received amounts under this subsection for the same purpose and duplicative of amounts applied for or received under a covered loan.
MATURITY FOR LOANS WITH REMAINING BALANCE AFTER APPLICATION OF FORGIVENESS—With respect to a covered loan that has a remaining balance after reduction based on the loan forgiveness amount under section 1106 of the CARES Act—
1) the remaining balance shall continue to be guaranteed by the Administration under this subsection; and
2) the covered loan shall have a maximum maturity of 10 years from the date on which the borrower applies for loan forgiveness under that section.
INTEREST RATE REQUIREMENTS—A covered loan shall bear an interest rate not to exceed 4 percent