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Bill launches loans to keep workers employed

The Families First Coronavirus Response, one of three relief packages signed into law in response to the mounting coronavirus pandemic, allocated #350 billion to help small businesses keep workers on payrolls amid the COVID-19 pandemic and the economic downturn that has followed in its wake.

Known as the Paycheck Protection Program, the initiative provides 100 percent federally-guaranteed loans to small businesses, which may be forgiven if borrowers maintain their payrolls during the crisis or restore them once it’s come to an end.

More details are forthcoming, including a list of lenders offering loans under the program, but the U.S. Chamber of Commerce has already issued a guide to help small businesses and self-employed workers apply for a loan.

Eligible businesses include those with fewer than 500 employees that otherwise meets the Small Business Administration’s (SBA) size standards; nonprofit organizations with less than 500 employees; an individual who operates as a sole proprietor or independent contractor; a self-employed worker who regularly carries on any trade or business; a tribal business concern that meets SBA size standards; and a nonprofit veterans organization that meets administration standards.

Additionally, special rules may apply to make other businesses eligible, including businesses in the food service sector, for which the 500-employee rule will be applied on a per-physical-location basis, and businesses operating as a franchise or receiving financial assistance from an approved Small Business Investment Company, for which affiliation rules will not apply.

When evaluating eligibility, lenders have been directed to consider if the borrower was in operation before Feb. 15, 2020, and paid workers’ salaries and payroll taxes or paid independent contractors.

Beyond that, lenders will ask borrowers for a “good faith certification” stating that the uncertainty of current economic conditions makes the loan necessary; the loan will be used to retain workers and maintain payroll or make mortgage, lease and utility payments; there is no pending loan application duplicating the purpose and amount applied for under the CARES Act; and the borrower has not received a similar loan between Feb. 15, 2020, and Dec. 31, 2020.

For independent contractors, sole proprietors and self-employed workers, lenders will also be looking for certain documents, such as payroll tax filings and other tax documents, though the full list of requirements will be announced in the coming weeks.

According to the chamber’s information sheet, business owners can borrow up to 2.5 times their average monthly payroll costs up to $10 million for payroll costs covered under the bill, which include salary, wage and other compensation; payment of cash tips or equivalent; placation, parental, family, medical or sick leave compensation; allowance for dismissal or separation; payments required to maintain group healthcare benefits, including insurance premiums; retirements benefits and payment of state or local taxes assessed on an employee’s compensation.

When it comes to sole proprietors, independent contractors and self-employed workers, the act covers the sum all compensation that is a wage, commission, income or net earnings that come out to no more than $100,000 per year.

Excluded from coverage is compensation for an individual employee making more than $100,000 annually; payroll taxes, railroad retirement taxes and income taxes; any compensation for an employee whose primary residence is outside of the U.S.; and qualified sick or family leave wages for which a credit is allowed elsewhere in the bill.

As far as loan forgiveness is concerned, borrowers are eligible for loan forgiveness equal to the amount spent on the following items during the eight-week period beginning on the date the loan started:

• Included payroll costs;

• Interest on the mortgage obligation incurred in the course of business;

• Rent on a leasing agreement;

• Payments on utilities, such as electricity, gas, water, transportation, telephone or internet service;

• Tipped workers and additional wages paid to employees.

The amount of forgiveness provided to businesses could be reduced if there is a reduction in the number of employees on the business’s payroll or a reduction of more than 25 percent in wages paid to employees.

Reductions in employment or wages that occurred between the period beginning Feb. 15, 2020, and ending 30 days after the enactment of the Coronavirus Aid, Relief and Economic Security (CARES) Act, which was approved Friday, will not reduce the amount of loan forgiveness, as long as the borrower eliminates the reduction by June 30, 2020.