CARES Act and Small Businesses

Updated on January 14, 2021. 

This summary of the Coronavirus Aid, Relief, and Economic Security (CARES) Act has been prepared by Berkeley Law professor and Berkeley Center for Law and Business faculty co-chair Robert Bartlett as of January 14, 2021. This summary incorporates the extension of several CARES Act programs that occurred in December 2020 as part of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the CARES Act 2.0).

Among other things, the CARES Act 2.0:

1. Re-opened the Paycheck Protection Program (PPP) through March 30, 2021 (described in Section A below);
2. Established Second Draw PPP loans for businesses that previously received a PPP loan (described in Section A below);
3. Added new funds for EIDL Advances (described in Section B below);
4. Provided funding for the Small Business Administration (SBA) to pay 3 to 6 months of principal and interest on outstanding Section 7(a) loans taken from the SBA (described in Section D below); and
5. created two new programs for businesses suffering from the COVID-19 pandemic: (1) Targeted EIDL Advances of $10,000 for businesses in lower income communities (described in Section B below) and (2) Shuttered Operating Grants (described in Section C below). 

The summary below focuses on the key provisions for assisting small business owners. Please note that this is a rapidly developing area. To stay current on recent developments, you should register for updates from the Small Business Administration at https://www.sba.gov/updates.  (For links to older overview videos of the CARES Act, which are current through April 6, 2020, see here and here.)

We are also working to match small business owners with Berkeley Law students who will help them navigate the CARES Act. More details on this program will be available soon. 

A. Paycheck Protection Program (PPP)

The CARES Act (as amended) allocates approximately $800 billion for loans to help small businesses keep workers employed amid the pandemic and economic downturn. So long as loan proceeds are used for allowable uses (defined below) during the 8- to 24-week period after the loan is disbursed, the amount of principal (and accrued interest) used for the allowable uses will be forgiven. (Note: as originally enacted, businesses were required to spend loan proceeds within 8-weeks from loan disbursement to qualify for loan forgiveness. This requirement was changed in December 2020, and the time frame for spending loan proceeds to achieve loan forgiveness (the “Forgiveness Period”) now commences on the origination date of the loan and ends on a date selected by the business that must be between 8 and 24 weeks after the loan’s origination date.)  Loans are guaranteed by the Small Business Administration (SBA) as part of its Section 7(a) loan program. Loans are originated by the SBA’s network of SBA-licensed lenders, as well as by other lenders who the SBA has approved to participate in the program.  

Please note that the terms of the PPP are subject to rules promulgated by the SBA and the Treasury Department.  The description below is subject to the rules currently in effect, which are referenced periodically below and can be located here.

Eligibility.  In general, a borrower must be one of the following: (i) a “small business concern” (based on existing SBA size criteria), (ii) a business concern, nonprofit, veterans organization or Tribal business with fewer than 500 employees, or (iii) a sole proprietorship or self-employed individual having bona fide business expense documents. (Note that an otherwise eligible borrower can be disqualified if it is affiliated with another business under the SBA’s affiliation rules. See Footnote 1).  Additionally, the CARES Act 2.0 expanded eligibility to housing cooperatives with fewer than 300 employees, as well as certain 501(c)(6) firms and organizations engaged in destination or tourism marketing, subject to certain restrictions (including having fewer than 300 employees). A borrower must have been in operation on February 15, 2020 and must make the certifications required by SBA Form 2483 which include (among other things):

• the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the borrower; and
• the funds will be used to retain workers and maintain payroll or to make mortgage payments, lease payments, utility payments, and/or other qualified payments (see below).

Even if an applicant satisfies these eligibility criteria, however, the CARES Act 2.0 provides that the following are ineligible for a PPP loan:

1. Any entity or individual receiving a “Shuttered Venue Operating Grant” (described below); and
2. Any company whose securities are listed on a national securities exchange.

The SBA rules additionally prohibit a borrower from obtaining a PPP loan if: (a) the borrower is engaged in an illegal activity, (b) an owner of 20% or more of the borrower is incarcerated, on probation, on parole, subject to indictment or has been convicted of a felony within the last five years, or (c) the borrower has previously defaulted (or is delinquent) on an SBA loan within the last seven years that has caused a loss to the government.  Householder employers are also specifically excluded from eligibility for PPP loans.

Required documentation.  The SBA rules state that applicants should be prepared to submit documentation to establish eligibility such as “payroll processor records, payroll tax filings, or Form 1099-MISC, or income and expenses from a sole proprietorship.” Additionally, borrowers must submit an SBA Form 2483, and any additional material required by a lender’s specific application. As noted in the next section, the loan amount will depend on a borrower’s average monthly payroll during the 1 year period before the loan application date; therefore, applicants should be prepared to furnish payroll records for this time period.

Maximum loan amount.  The maximum loan amount under the program will be the lesser of (i) 2.5 multiplied by the applicant’s average total monthly payments for “payroll costs” incurred during the 1 year period before the loan application date, plus any amounts outstanding under an SBA disaster loan (described below) originated from January 31, 2020 to April 3, 2020 that the borrower intends to refinance with a PPP loan, and (ii) $10 million. Payroll costs have a specific definition that must be followed in calculating “payroll costs” for this purpose, depending on whether the borrower is self-employed. [See Footnote 2]. The SBA has provided specific instructions for calculating loan amounts by borrower type (e.g., C-Corp, self-employed individuals, eligible nonprofits, etc.), which can be found here.

Maturity for principal that is not forgiven.  Loans originated prior to June 6, 2020 have a 2 year maturity. Loans issued after this date will have a maturity of 5 years. (The minimum maturity date was increased to 5 years as part of the Paycheck Protection Program Flexibility Act of 2020 (PPPFA) enacted on June 5, 2020). 

Interest rate for principal that is not forgiven.  The SBA rules provide that the loans will have an annual interest of 1%.  [See Footnote 3]

Allowable uses.  Loan proceeds may be used to make payroll costs for U.S. employees (using the same definition of “payroll costs” in Footnote 2), interest on mortgage obligations, rent, utilities, and interest on other debt incurred before February 15, 2020. Additionally, the CARES Act 2.0 expands the list of permitted uses (“CARES Act 2.0 Expenses”) to include: (a) expenses for business software, cloud computing services, or payroll processing, (b) costs related to “property damage, vandalism, or looting due to public disturbances in 2020,” (c) payments to suppliers that are essential to the business’ operations, and (d) operating or capital expenses to comply with public health directives, including the installation of ventilation systems or physical barriers and the purchase of personal protective equipment. If funds are used for unauthorized purposes, the SBA rules state that the SBA may have recourse against shareholders, members, and partners of the borrower.

Deferral of principal and interest payments.  Under the PPPFA, principal and interest payments for amounts that are not forgiven will be deferred until the date that a final determination of loan forgiveness is made (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness period, discussed next).

Loan forgiveness.  A borrower is eligible for loan forgiveness equal to the Forgiveness Amount. The CARES Act (as modified by the PPPFA) states that the Forgiveness Amount is capped at the principal amount of the loan and is equal to the amount the borrower spends on the following items during the Forgiveness Period (defined above):

• Payroll costs (using the same definition of payroll costs in Footnote 2)+
• Interest on any mortgage obligation incurred in the ordinary course of business+
• Rent on a leasing agreement+
• Payments on utilities (electricity, gas, water, transportation, telephone, or internet)+
• For borrowers with tipped employees, additional wages paid to those employees +
• CARES Act 2.0 Expenses. 

An important qualification to these expenditure rules is that no more than 40% of the forgiven debt may be attributed to non-payroll costs. Thus, for Borrowers with meaningful non-payroll expenses, the Forgiveness Amount will generally be equal to:

(Total Payroll Costs During Forgiveness Period)/.6

According to a joint statement made by Treasury Secretary Steven T. Mnuchin and SBA Administrator Jovita Carranza, if a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness period, “the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.”

Loan forgiveness reduction.  The original CARES Act provides that the Forgiveness Amount would be reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages/salary paid to any employee. In general, any reduction in the Forgiveness Amount will depend on (a) if a borrower retains employees relative to pre-pandemic levels, and (b) regardless of the number of employees retained, if a borrower reduces employee wages relative to pre-pandemic levels. Under the CARES Act 2.0, the SBA has authority to update the dates for making these determinations. Until the SBA provides the updates, the CARES Act (as modified by the CARES 2.0) provides the following:

Reduction based on the reduction of numbers of Full-Time Equivalent (FTE) Employees:

• Forgiveness Amount x (Average Number of FTE Employees Per Month for the Forgiveness Period)/(Average Number of FTEs per month from 2/15/19 to 6/30/19; or Average Number of FTEs per month from 1/1/20 to 2/29/20).[See Footnote 4]

Reduction based on reduction in wages or salaries:

• Forgiveness Amount, less (For any employee who did not earn during any pay period in 2019 wages at an annualized rate of more than $100,000, the aggregate amount of any reduction in wages or salary that is greater than 25% compared to the employee’s compensation rate between January 1, 2020 and March 31, 2020). [See Footnote 5]

Special provision for rehiring: 

• Reductions in employment or wages/salary that occured between February 15, 2020 and April 26, 2020 (as compared to February 15, 2020) shall not reduce the amount of loan forgiveness if by December 30, 2020 (or with respect to a Second Draw Loan (defined below), not later than the last day of the covered period of the Second Draw Loan) the borrower has eliminated the reduction in employees or reduction in wages.

Special provision for unavailable employees: 

• Reductions in average FTE will have no effect on loan forgiveness if a borrower either (A) in good faith can show an “inability to rehire individuals who were employees of the eligible recipient on February 15, 2020” or other “similarly qualified employees for unfilled positions on or before December 31, 2020” (or with respect to a Second Draw Loan (as defined below), on or before the last day of the covered period of the Second Draw Loan) or (B) can document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with public health or worker safety requirements related to COVID-19.

Streamlined Loan Forgiveness for PPP loans of up to $150,000.  The CARES Act 2.0 provides that PPP loans of $150,000 or less shall have a simple, 1 page loan forgiveness application. The simplified application requires the borrower to submit a certification that requires the borrower to describe the number of employees the borrower was able to retain because of the PPP loan, the estimated amount of the loan spent on payroll, and the total loan amount. The borrower will also be required to attest that the borrower accurately provided the certification and complied with all program requirements. The borrower must also retain records that prove its compliance with program requirements for up to four years. The SBA retains the authority to audit all PPP loans.

Tax Treatment of Forgiveness PPP loans.  The CARES 2.0 provides that PPP loan forgiveness is excluded from gross income, and business expenses paid with PPP loan proceeds will remain deductible to the extent they are deductible in the absence of PPP loan forgiveness.

Second Draw Loans.  For businesses that receive a PPP loan, the CARES Act 2.0 permits these businesses to receive a second PPP loan if they satisfy the eligibility requirements (a “Second Draw Loan.”).

Eligibility: To be eligible, an applicant must have (a) 300 or fewer employees and (b) sustained at least a 25% reduction in revenue in a calendar quarter in 2020 relative to the same quarter in 2019. (Where a business was not in operation for all of 2019, special rules apply for determining whether the business meets the 25% reduction in revenue criteria). A borrower must also have exhausted any funds received from a prior PPP loan.  As with the original PPP program, certain businesses are excluded from eligibility (see above), and the CARES ACT 2.0 additionally excludes from eligibility applicants with a 20% owner or shareholder from China and Hong Kong or an applicant that has one or more directors that are residents of Mainland China).

Amount: The amount of a Second Draw Loan is 2.5 times the borrower’s average monthly payroll costs in (i) the 12 months prior to loan origination or (ii) calendar year 2019, up to $2 million.  Hotels and restaurants, however, may receive loans in an amount equal to 3.5 times the borrower’s average monthly payroll costs, up to $2 million. Seasonal employers may calculate their maximum loan amount based on any 12-week period between February 15, 2019 and February 15, 2020. Businesses not in operation for the year prior to February 15, 2020 may calculate their maximum loan amount based on average monthly payroll costs for the period that they were in operation.

Loan Forgiveness: All of the provisions for loan forgiveness described above for PPP loans also apply to Second Draw Loans.  For purposes of calculating the Forgiveness Amount of a Second Draw Law, the Forgiveness Period commences on the origination date of the Second Draw Law and ends on a date selected by the business that must be between 8 and 24 weeks after the origination date of the Second Draw Law. As with an initial PPP loan, the Forgiveness Amount will typically be the lesser of (a) (Total Payroll Costs During Forgiveness Period)/.6, or (b) the amount of the Second Draw Law (if all proceeds are used for payroll costs).

Other PPP Terms.  No collateral is required and loans are non-recourse to the business owner (no personal guarantee) so long as proceeds are used for authorized purposes. There is no prepayment penalty.

Other Fees.  The SBA will reimburse lenders for the costs of providing the loans; therefore, borrowers should not be required to pay any fees for obtaining a PPP loan.

Where and When to Apply.  So long as funds are available, PPP applications will be available through March 31, 2021 by both SBA-licensed lenders and additional lenders that apply with the SBA to originate PPP loans.

The SBA also offers a direct loan product for businesses in a designated disaster area, which includes all 50 states due to the COVID-19 pandemic. Applications are made directly on the SBA’s website using a streamlined COVID-19 application. Through December 31, 2021, a loan applicant can receive a prompt advance of up to $10,000 that does not need to be repaid (even if the disaster loan is ultimately denied). (Note: most advances have been for substantially less than $10,000 due to demand). The cash advance can be used for any allowable use (see below). The CARES Act 2.0 also created “targeted” EIDL grants (described below) that prioritize hard hit businesses in lower-income communities.

Eligible entity.  Eligible applicants include a business or cooperative with not more than 500 employees (including sole proprietorships and self-employed individuals) and private nonprofit organizations. A full list is provided on the SBA’s website application page. For COVID-19 related loans, there no need to satisfy the 1-year operating history requirement that typically applies to SBA economic injury loans, but the business must have been in operation on January 31, 2020. Likewise, there is no need to show that the applicant is unable to obtain credit elsewhere.

Allowable uses.  Proceeds from an EIDL can be used for any purpose allowed under Section 7(b)(2) of the Small Business Administration Act, including providing paid sick leave to employees unable to work, maintaining payroll to retain employees, meeting increased costs to obtain materials, making rent or mortgage payments, and repaying other obligations.

Maximum loan amount.  $2 million

Maximum term.  30 years

Interest rate.  3.75% per year for small businesses and 2.75% for non-profits.

Personal Guarantee Waiver.  There is no personal guarantee requirement if the loan is in response to COVID-19 and the total of all such disaster loans from January 1, 2020, to December 30, 2000, is less than $200,000.

Targeted EIDL Grants.  The CARES Act 2.0 allocates $20 billion for EIDL Grants for small businesses that have experienced a severe drop in revenue and are located a “low income community.” [See Footnote 7].  An applicant that qualifies will receive a $10,000 grant which does not need to be repaid.

Eligibility. To qualify, an applicant must (a) apply for an EIDL loan between January 31, 2020 and December 31, 2021, (b) be located in a low-income community, (c) have suffered an economic loss of greater than 30%, and (d) employ 30 or fewer employees.  To demonstrate an economic loss of greater than 30%, the applicant must be able to show that gross receipts for any 8-week period between March 2, 2020 and December 31, 2021 declined by more than 30% relative to a comparable 8-week period prior to March 2, 2020 or during 2019.

Amount. In contrast to Emergency EIDL grants described above, eligible applicants for Targeted EIDL Grants are entitled to the full $10,000 grant, regardless of whether the EIDL loan is approved or accepted by the applicant.  In the event the applicant previously received an Emergency EIDL grant, the amount of the prior grant will be deducted from the $10,000 grant.

Where and When to Apply.  Applications for Emergency Economic Injury Disaster Loans should be made directly on the SBA’s website using its streamlined COVID-19 application. As of January 14, 2021, the SBA has not refreshed the application for EIDL Advances nor has it established an application for the Targeted EIDL Grants.  We expect that the SBA will post applications for both programs on the EIDL link; therefore, businesses interested in either program should continue to check this link for information on when applications for EIDL Advances or Targeted EIDL Grants will be made available.

C. Shuttered Venue Operating Grants

The CARES Act 2.0 authorizes the SBA to make grants to eligible live venue operators, theatrical producers, live performing arts organization operators, museum operators, movie theatre operators, or talent representatives that were in business as of February 29, 2020 and who have been adversely affected by the COVID-19 pandemic. These grants do not need to be repaid and can be expended on a broad range of business expenses.  As such, they provide more flexibility than PPP loans (which, as discussed above, requires at least 60% of the loan proceeds to be applied towards payroll costs in order to quality for loan forgiveness). A business that receives a Shuttered Venue Operating Grant cannot also receive a PPP loan.   

Eligible entity.  Eligible applicants include eligible live venue operators, theatrical producers, live performing arts organization operators, museum operators, movie theater operators, or talent representatives that were in business as of February 29, 2020 and sustained a 25% loss in revenue in the first, second, third, or fourth quarter of 2020, relative to the same quarter in 2019.  To be eligible, a business must also be open or intend to reopen and must be able to satisfy certain requirements to confirm that the business was a bona fide venue operator or performance promoter.  An applicant must also have not taken a PPP loan after December 28, 2020. Additionally, the following applicants are ineligible; (a) an applicant owned or controlled by publicly traded companies, (b) applicants receiving more than 10% of 2019 gross revenue from federal funding (excluding funding from the Robert Stafford Disaster Relieve and Emergency Assistance Act), and (c) applicants having more than 500 employees.

Amount of grant. The SBA may make an initial grant of 45 percent of the applicant’s 2019 revenue (subject to proration for venue operators not in operation for all of 2019). Additionally, an applicant can receive a supplemental grant equal to 50% of the initial grant if, as of April 1, 2021, the revenues of the applicant for the most recent calendar quarter are not more than 30% of its revenues for the same quarter in 2019 due to COVID-19. The maximum combined amount an applicant can receive through the program is $10 million.

Allowable uses.  Proceeds from Shuttered Venue Operating Grants may be used for eligible expenses incurred during the period beginning March 1, 2020 and ending December 31, 2021. Applicants receiving a supplemental grant may use the supplemental proceeds for eligible expenses incurred from March 1, 2020 through June 30, 2022. Eligible expenses include: Payroll costs, rent, utilities, scheduled mortgage payments, interest on preexisting debt, personal protective equipment, and other “ordinary and necessary business expenses.”

D. Other 7(a) Loans Guaranteed by the SBA

Under the CARES Act, the SBA paid principal and interest on any Section 7(a) loan (aside from PPP loans described above) for six months, so long as the loan was originated before September 26, 2020. The CARES Act 2.0 provides that the SBA will pay three additional months of principal and interest on these pre-existing loans, starting on February 1, 2021.  Additionally, for borrowers especially hard hit by the pandemic (e.g., clothing retailers, food services, etc.), the SBA will cover an additional five months of principal and interest payments for these loans.  For Section 7(a) loans approved between February 1, 2021 and September 30, 2021, the SBA will also pay six months of principal and interest.  These payments, however, are capped at $9,000 per month.

Allowable purpose.  General working capital.

Eligible entities.  No modification was made in the Act, so presumably, they remain limited to conventional small business concerns (as defined by SBA) and private non-profits.

Express loans.  Express loans are a type of SBA Section 7(a) loan that typically have fast approval times (generally 36 hours). The maximum Express Loan amount has been increased in the CARES Act from $350,000 to $1,000,000 through 10/1/21.

Where to apply.  As noted above, Section 7(a) loans are originated by SBA-licensed lenders. A list of the most active Section 7(a) SBA lenders can be found here: https://www.sba.gov/article/2020/mar/02/100-most-active-sba-7a-lenders.

E. Other relevant considerations for small businesses due to recent federal stimulus programs

1. Delay of Payment of Employer Payroll Taxes. Employers are generally responsible for paying a 6.2 percent Social Security tax on employee wages. The CARES Act  allows employers and self-employed individuals to defer payment of the employer‘s share of its 2020 Social Security tax obligations that it would otherwise be responsible for paying to the federal government with respect to its employees. The deferred employment tax would be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022.  

2. Employee Retention Credit.  This provision allows eligible employers a refundable tax credit against the employer’s required social security taxes payable between March 12, 2020 and January 1, 2021. Eligible employers are those whose operations were fully or partially suspended due to a COVID-19 government-mandated shut-down order, or employers whose gross receipts declined by greater than 50 percent when compared to the corresponding calendar quarter of the prior year. Eligibility for the credit begins with the first 2020 calendar quarter in which the employer’s gross receipts declined by greater than 50 percent of the corresponding calendar quarter of the prior year, and ends with the calendar quarter following the calendar quarter in which the gross receipts exceed 80 percent of the corresponding calendar quarter of the prior year. For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above. For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order. The amount of the tax credit is equal to up to 50% of the first $10,000 of qualified wages paid to an eligible employee, which may include the employer’s contribution to the employees’ health insurance costs but will exclude any amounts for which the employer has already received a tax credit due to sick leave or family leave under the Families First Coronavirus Response Act (discussed next). This amounts to a maximum credit of $5,000 per employee. The credit would be provided for wages paid or incurred from March 13, 2020 through December 31, 2020. Note: This provision does NOT apply to any business that receives a loan under the Paycheck Protection Program.

3. Employer tax credits for family/sick leave.  The Families First Coronavirus Response Act (FFCRA) requires employers with fewer than 500 employees (with some exceptions) to provide 80 hours of paid sick leave and expanded paid child care leave when employees’ children’s schools are closed or child care providers are unavailable. [See Footnote 8] However, the FFCRA also provides employers with fewer than 500 employees with refundable payroll tax credits to cover the cost of providing this required leave. Employers receive a 100% tax credit against their payroll tax liability up to the amount of benefits they must pay under the FFCRA. Health insurance costs are also included in the credit. To take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes (including withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees). If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form to the IRS. Equivalent credits are available to self-employed individuals. Eligible Employers may claim tax credits for qualified leave wages paid to employees on leave due to paid sick leave or expanded family and medical leave for reasons related to COVID-19 beginning on April 1, 2020, and ending on March 31, 2021. For more information, please consult the IRS FAQs regarding these tax benefits.

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 1. The SBA affiliation rules require a company to count its own employees, along with the employees of a business that is “affiliated” with the business. For example, if two businesses are affiliated and if each business has 300 employees, each business would be deemed to have 600 employees, thus exceeding the 500 employee maximum for eligibility under the PPP.  In general, affiliation exists when one business controls or has the power to control another or when a third-party controls or has the power to control both businesses. Control may arise through ownership, management, or other relationships or interactions between the parties. The CARES Act exempts some companies from these affiliation rules.  In particular, businesses with the NAICS Code beginning with 72 (generally restaurants, food services, and hotels) and that have more than one physical location are eligible to receive PPP loans so long as they employ less than 500 employees at each physical location. Additionally, the CARES Act waives SBA’s affiliation rules for any business in the accommodation and food services industries with 500 or fewer employees as of the date on which the loan is disbursed, any business concern operating as a franchise that has received a franchise identifier code from SBA, and any business that receives financial assistance from a Small Business Investment Corporation (SBIC).

2. An applicant that is not a self-employed business would calculate payroll costs as the total of (a) compensation paid as salaries, wages, commissions, (b) payment of cash tips, (c) payment for vacation, parental, family, medical or sick leave, (d) allowance for dismissals or separations, (e) payment for the health care benefits (including health care premiums),  (f) payment for any retirement benefits, (g) payments for the provision of group life, disability, vision, and dental insurance benefits, and (h) payment of state or local taxes assessed on employee compensation; however, payroll costs excludes the following: the compensation of an individual employee in excess of an annual salary of $100,000, federal tax withholdings from February 15, 2020 to June 30, 2020, any compensation paid to a non-US resident, qualified sick and family leave for which a payroll tax credit is provided under the Families First Coronavirus Response Act (discussed below under “Employer tax credits for family/sick leave”). For an applicant that is a self-employed business, payroll costs equal all payments of any compensation or income of a sole proprietor or independent contract that is a wage, commission, income, net earnings from self-employment or similar compensation up to a limit of an annualized compensation of $100,000, but excludes the following: the compensation of an individual employee in excess of an annual salary of $100,000, federal tax withholdings from February 15, 2020 to June 30, 2020, any compensation paid to a non-US resident, qualified sick and family leave for which a payroll tax credit is provided under the Families First Coronavirus Response Act (discussed below under “Employer tax credits for family/sick leave”).

3. All accrued interest on any principal amount that is forgiven will be paid by the SBA.  See Section 1106(c)(3) of the CARES Act (“REMITTANCE.—Not later than 90 days after the date on which the amount of forgiveness under this section is determined, the Administrator shall remit to the lender an amount equal to the amount of forgiveness, plus any interest accrued through the date of payment.”)

4. The original loan forgiveness application indicates that the calculation of average FTE for both the Forgiveness Period and the pre-loan reference period will be based on the average number of hours paid per week to an employee, divided by 40 (rounded to the nearest tenth).  For seasonable employers, the average number of FTE employees for the pre-loan reference period can be based on any of the following periods: between February 15, 2019 and June 30, 2019; between January 1, 2020 and February 29, 2020; or any consecutive twelve week period between May 1, 2019 and September 15, 2019.

5. The original loan forgiveness application indicates that this assessment will be made separately for each individual employee.  For example, assume that the average hourly wage rate for an employee was $15/hour in the period January 1, 2020 to March 31, 2020.  During the Forgiveness Period, however, the average hourly wage rate for this employee is reduced to $10/hour.  Seventy-five percent of $15/hour is $11.25/hour, which is more than the employee’s current $10/hour wage rate.  Thus, there would be a reduction in the Loan Forgiveness Amount for this employee.  The amount of the reduction for this employee (absent a restoration of wages to $15/hour by December 31, 2020, discussed next) would be ($11.25-$10.00) X Average Number of Hours Worked Per Week from January 1, 2020 to March 31, 2020 X [# of weeks in Forgiveness Period].  Note that this formula focuses on a reduction to the hourly wage rate (and not the hourly wages actually paid). As a result, this formula means that employees who work fewer hours but otherwise experience no decline in their hourly wage rates would cause a reduction in the Loan Forgiveness Amount because of a reduction in their average FTEs, but they would not additionally cause a reduction in the Loan Forgiveness Amount because of a decline in their wage rate.  In other words, so long as employees retain 75% of their wage rate or nominal salary, any reduction in their hours worked will reduce the Loan Forgiveness Amount only through the reduction in average FTEs during the Forgiveness Period.

6. A seasonal employer is a business that does not operate for more than 7 months in any calendar year or, in prior year, had rolling 6 months revenues that were less than 1/3 of the revenues of the other six months.

7. A low income community is defined in Section 45D(e) of the Internal Revenue Code as follows: a census tract that (a) has a poverty rate of at least 20%, (b) in the case of a tract not located within a metropolitan area, the median family income for such tract is 80% or lower than the statewide median family income, or (c) in the case of a tract located within a metropolitan area, the median family income for such tract does not exceed 80% of the greater of the statewide median family income or the metropolitan area median family income. To determine if a business is located in a low income community, enter the business address here and select “Census Demographic Data” for Income.

8. An employee who is unable to work due to a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19, may in some instances receive up to an additional ten weeks of expanded paid family and medical leave. Paid family and medical leave (FMLA) under the FFCRA is capped at $200 per day and $10,000 total per employee. Paid sick leave under the FFCRA is capped at $511 per day and $5,110 total per employee. This amount drops to $200 per day and $2000 total for sick leave taken by an employee in order to care for a family member in quarantine or care for a child whose school has closed.