Senate CARES Bill HR 748 Update Paycheck Protection

Senate CARES Bill (HR 748) Update Paycheck Protection Program (Sec 1102) Loan Forgiveness (Sec 1106) Lynn Mucenski-Keck, Partner 21 T h e B o n a d i o G ro u p 22

Paycheck Protection Program Increases the government guarantee o loans made or the Payment Protection Program under section 7(a) o the Small Business Act to 100 percent through December 31, 2020. Who is making the loans? Provided delegated authority to lenders in allowing them to determine eligibility and credit worthiness without going through SBA channels. A lender approved to make loans is deemed to have been delegated authority by the Administrator to make and approve covered loans. How are banks evaluating the borrower? In evaluating the eligibility o a borrower or a covered loan, a lender can consider whether the borrower: • • was in operation on February 15, 2020; and had employees or whom the borrower paid salaries and payroll taxes OR paid independent contractors as reported on a Form 1099 -MISC. 23 T h e B o n a d i o G ro u p 24

Paycheck Protection Program Beginning on February 15, 2020 and ending on June 30, 2020, in addition to small business concerns, any business concern, non-profit organization, veterans organization, or Tribal business is eligible to receive a covered loan if the business concern, nonprofit organization, veterans organization, or Tribal business concern employs not more than the greater of 500 employees; or if applicable, the size standard in number of employees established by the Administration for the industry in which the organization operates. 2 Paycheck Protection Program Employee Limit • The term empl yee includes individuals empl yed n a full-time, part-time r ther basis. • Excepti n f r Acc mm dati n and F d Services: the 500 empl yees can be measured per physical l cati n. • Waives affiliati n rules f r franchises that are appr ved n the SBA's Franchise Direct ry and small businesses that receive financing thr ugh the Small Business Investment C mpany (SBIC) pr gram. • Individuals wh perate under a s le pr priet rship r as an independent c ntract r and eligible self-empl yed individuals may be eligible t receive a c vered l an. 25 T h e B o n a d i o G ro u p 25

Paycheck Protection Program Maximum Loan Amount Beginning on Feb ua y 15, 2020 and ending on June 30, 2020, the maximum loan amount is the lesse of: • the a erage total monthly payments by the applicant fo payroll costs incu ed du ing the 1 -yea pe iod befo e the date on which the loan is made multiplied by 2. 5; • plus the outstanding loan amounts that we e made beginning on Janua y 31, 2020 and ending on the date you eceive this loan, eligible to be efinanced unde this loan; OR • $10, 000. Special rules exist for seasonal employers and businesses not in existence beginning 2/15/2019 and ending on 6/30/2019. 26 T h e B o n a d i o G ro u p 26

Paycheck Protection Program Maximum Loan Amount Payroll Costs include: • alary, wage, commi ion, or imilar compen ation; • payment of ca h tip or equivalent; • payment of vacation, parental, family, medical or ick leave; • allowance for di mi al or eparation; • payment required for the provi ion of group health care benefit , including in urance premium ; • payment of any retirement benefit ; or • payment of tate or local tax a e ed on the compen ation of employee ; • the um of payment of any compen ation to or income of a sole proprietor or independent contractor that i a wage, commi ion, income, net earning from elf-employment, or imilar compen ation and that i in an amount not exceeding more than $100, 000 in 1 year, a prorated for the period beginning on February 15, 2020 and ending on June 30, 2020. 27 T h e B o n a d i o G ro u p 27

Paycheck Protection Program Maximum Loan Amount Payroll Costs do NOT nclude: • the compensat on of an nd v dual employee's n excess of an annual salary of $100, 000 as prorated for the per od beg nn ng on February 15, 2020 and end ng on June 30, 2020; • taxes mposed or w thheld under FICA (Soc al Secur ty and Med care), Ra lroad Ret rement Act, and IRC Chapter 24 ( ncome tax at source); • any compensat on of an employee whose pr nc pal place of res dence s outs de the Un ted States; • qual f ed s ck leave or fam ly leave wages for wh ch a cred t s allowed under the Fam l es F rst Coronav rus Response Act. 28 T h e B o n a d i o G ro u p 28

Paycheck Protection Program What can I use the loan for? Between February 15, 2020 and ending on June 30, 2020, the eligible recipient can u e the proceed from the loan for: • payroll co t ; • co t related to the continuation of group health care benefit during period ; of paid ick, medical, or family leave, and in urance premium ; • employee alarie , commi ion, or imilar compen ation ; • payment of intere t on any mortgage obligation; • rent (including rent under a lea e agreement); • utilitie ; and • intere t on any other debt obligation that were incurred before the period. 29 T h e B o n a d i o G ro u p 29

Paycheck Protection Program Recipient Good Faith Certifications An eligible recipien applying for a covered loan mus make a good fai h cer ifica ion ha : • he uncer ain y of curren economic condi ions makes necessary he loan reques o suppor he ongoing opera ions of he eligible recipien ; • acknowledging ha funds will be used o re ain workers and main payroll or make mor gage paymen s, lease paymen s, and u ili y paymen s; • ha he eligible recipien does no have an applica ion pending for a loan under his subsec ion for he same purpose and duplica ive of amoun s applied for or received under a covered loan; and • during he period beginning on February 15, 2020 and ending on December 31, 2020, ha he eligible recipien has no received amoun s under his subsec ion for he same purpose and duplica ive of amoun s applied for or received under a covered loan. 30 T h e B o n a d i o G ro u p 30

Paycheck Protection Program Nonrecourse The administrati n has n rec urse against any individual shareh lder, member, r partner f an eligible recipient f a c vered l an f r n npayment f any c vered l an UNLESS it is used f r a purp ses n t auth rized. No Guarantee Between February 15, 2020 and ending n June 30, 2020, n pers nal guarantee is required f r the c vered l an AND n c llateral is required f r the c ver l an. No Fees Between February 15, 2020 and ending n June 30, 2020, with respect t c vered l an, the Administrat r will n t c llect a fee. 31 T h e B o n a d i o G ro u p 31

Paycheck Protection Program Deferral of Payment: Between Febr ary 15, 2020 and ending on J ne 30, 2020, the Administration provides complete payment deferment relief for impacted borrowers with a loan for a period of not less than 6 months and not more than 1 year. • Incl des the payment of principal, interest, and fees An impacted borrower is an eligible receipt who is in operation on Febr ary 15, 2020 and has an application for covered loan that is approved or pending after the date of enactment. 32 T h e B o n a d i o G ro u p 32

Loan Forgiveness An individual or en i y ha is eligible o receive a covered loan is eligible forgiveness of indeb edness on ha loan in an amoun equal o he sum of he following cos s incurred and paymen s made during the 8 -week period beginning on the date of the origination of a covered loan: • payroll Cos s (reference defini ion above); • any paymen of in eres on any covered mor gage obliga ion • any indeb edness or deb ins rumen incurred in he ordinary course of business ha is a liabili y of he borrower, is a mor gage on real or personal proper y and was incurred before 2/15/2020; • any paymen of a ren obliga ion made under a leasing agreemen in force before 2/15/2020; • any u ili y paymen rela ed o he dis ribu ion of elec rici y, gas, wa er, ranspor a ion, elephone or in eres access for which service began before 2/15/2020. 33 T h e B o n a d i o G ro u p 33

Loan Forgiveness Information that must be provided to the Lender: • documentation verifying the number of full time equivalent employees on payroll and pay rates including payroll tax filings reported to the IRS and State income, payroll, and unemployment insurance filings; • documentation, including cancelled checks, payment receipts, transcripts of accounts, or other documents verifying payments on covered mortgage obligations, payments on covered lease obligations, and covered utility payments. 34 T h e B o n a d i o G ro u p 34

Loan Forgiveness Information that must be provided to the Lender: • certification from a representative of the eligible recipient authori ed to make such certifications that • • the documentation presented is true and correct; AND amount for which forgiveness is requested was used to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation, or make covered utility payments; • any other documentation the administrator determines is necessary. No eligible recipient shall receive forgiveness without submitting to the lender that is servicing the covered loan the documentation required. 35 T h e B o n a d i o G ro u p 35

Loan Forgiveness Timing of Loan Forgiveness Decision: No later than 60 days after the date on which a lender receives an application for loan forgiveness from an eligible recipient, the lender will issue a decision on the an application. Taxability Any amount would be includible in gross income of the eligible recipient by reason of forgiveness is excluded from gross income. 36 The Bonadio Group 36

Loan Forgiveness Reduction of Loan Forgiveness • The amount of loan forgiveness may be reduced if there is a reduction in full time equivalent em loyees when com aring to the average number of full time equivalent em loyees er month em loyed by the eligible reci ient during the eriod beginning February 15, 2019 and ending on June 30, 2019 OR January 1, 2020 and ending on February 29, 2020. • Reductions also exist for certain reductions in total salary or wages of any em loyees in excess of 25 ercent. • Em loyees in this instance refer to em loyees who in 2019 did not receive a wage or salary at an annualized rate more than $100, 000. • S ecial rules for ti eriod. ed workers and rehires during a certain time 37 T h e B o n a d i o G ro u p 37