Updated April 3, 2020

The financial vitality of many Denver businesses has come into question since the implementation of COVID-19 prevention orders. Many have been forced to change their business model or completely shut down to maintain compliance. While beneficial for public health, it has created dire conditions for those who abruptly lost the ability to generate income. This has left many business owners looking for new sources of working capital to cover essential expenses such as payroll, benefits and even rent. The recently enacted Coronavirus Aid, Relief and Economic Security (CARES) Act offers new Small Business Administration loan program designed to help businesses in this situation. The most popular is the Paycheck Protection Program, a forgivable loan designed to boost working capital to struggling companies. To help clients, prospects and others, Hanson & Co has provided a summary of key program details below.

Program Essentials

The Paycheck Protection Program is a new SBA-administered loan and forgiveness program that provides loans for eligible sole proprietors, independent contractors, self-employed, small businesses with 500 or fewer employees, hospitality industry businesses with more than 500 employees, but with not more than 500 employees in each physical location, and to small businesses that otherwise meet the SBA size standard by NAICS code. 501(c)(3) nonprofit organizations, 501(c)(19) veterans’ organizations, and some tribal businesses are eligible. An eligible business for purposes of the loan was in operation before February 15, 2020 and had employees that were paid salary or wages and payroll taxes.

Loan Requirements

Loan funds need to be used to cover payroll costs, including benefits, mortgage, rent, and utilities. This specifically includes salaries, wages, commissions or tips (limited to $100,000 on an annualized basis for each employee), benefits such as vacation time, family, medical or sick leave benefits, group health insurance premiums, retirement benefits and on any taxes assessed on compensation.

Loan Amount

A loan for the lesser of $10 million or 2½ times the average monthly payroll payments for 2019, is available through the program. For businesses that were not in operation during the period from February 15, 2019 – June 30, 2019, average monthly payroll payments from January 1, 2020 – February 29, 2020, are used instead of the full year. The outstanding amount of any Emergency Injury Disaster Loan (EIDL) made from January 1, 2020, to April 3, 2020 (less the EIDL advance), is added to payroll payments to determine the maximum loan amount not to exceed $10 million. SBA recently clarified that independent contractors are not included in the average monthly payroll calculation.

Loan Terms

Interest on the loan is 14% and repayment is 2 years. Payments can be deferred for 6 months. Interest will continue to accrue during the deferral period. SBA guarantees the loan 100% and pays all loan fees. Personal guarantees or collateral are not required. The loan is forgiven, and not includable in income, so long as the loan is used for payroll, mortgage interest, rent, or utility payments within eight weeks of the loan disbursement date.

Loan Qualification

To determine eligibility and the maximum amount of loan, businesses should plan to assemble monthly financial statements, monthly payroll reports, W2s, Forms 941, Forms 1099-MISC. for 2019. Additional payroll payment records or bank account information may be requested by your bank. Sole proprietors, independent contractors and the self-employed should also plan to assemble tax returns and Forms 1099-MISC.

Loan Forgiveness

The loan is forgiven if the proceeds are used within eight weeks for payroll, mortgage interest, lease or utility payments, and employee count is not reduced and compensation is not reduced more than 25% for any employee.

The amount forgiven is reduced by average monthly full-time equivalent employee reductions during the eight weeks after disbursement. The business may compare average monthly FTE employees during the period to average monthly FTE employees from February 15, 2019, to June 30, 2019, or from January 1, 2020, to February 29, 2020, to assess reductions. The amount forgiven is also reduced for each employee, earning less than $100,000 annually, whose wages are reduced more than 25% when compared to the most recent calendar quarter. The amount forgiven is also reduced by any EIDL grant received through the SBA’s Emergency Injury Disaster Loan program.

Reductions in employment or wages between February 15, 2020, and April 26, 2020, do not reduce the amount of the loan forgiven if employees and wages are restored by June 30, 2020.

Contact Us

The opportunity offered by the Paycheck Protection Program is one that many Denver businesses can not afford to miss. While there are rules on how loan funds need to be spent it’s a welcome release valve. If you have questions about the information outlined above or need assistance with another COVID-19 issue, Hanson & Co can help. For additional information call us at 303-388-1010 or click here to contact us.