Risk & Business Magazine Spectrum Insurance Spring 2020 | Page 30

CARES ACT
$150,000 and 85 percent for loans
equal to or less than $150,000.
• Collateral and personal
guarantees will not be required.
•
• SBA loan fees will be waived.
The SBA requirement that the
business is unable to obtain credit
elsewhere will be waived.
• The loans will not be subject to
any prepayment penalty.
• The loans will be nonrecourse to
the business owners except to the
extent they use the proceeds for
an unauthorized purpose.
• Businesses will be required to
certify that:
• The uncertainty of current
economic conditions makes
the loan necessary;
• The funds will be used to
retain workers and maintain
payroll or make mortgage
payments, lease payments,
and utility payments; and
• It does not have an
application pending, or it has
not received a loan, under the
PPP for the same purpose.
PPP LOANS ARE FORGIVABLE UNDER
THESE CIRCUMSTANCES
A business that receives a PPP loan will
be eligible for forgiveness of indebtedness,
which will be nontaxable, in an amount
equal to the sum of the following costs
incurred and paid during the eight-week
period beginning on the date of the
origination of the loan:
1. Payroll costs (using the same
definition for determining the
maximum principal amount of a loan
as described above);
2. Interest payments on mortgage
loans (provided that the mortgage
loan was incurred prior to February
15, 2020);
3. Rent obligations (provided that the
30
leasing arrangement was in force
prior to February 15, 2020); and
4. Utility payments (provided that
services began prior to February 15,
2020).
The amount forgiven may not exceed
the principal amount of the PPP loan.
The amount of loan forgiveness will
be reduced according to the following
formula:
•
Amount of forgivable payroll
and other costs described above,
multiplied by the quotient of (A)
the average number of full-time
employees (FTEs) per month
employed during the eight-week
period beginning on the date of
the origination of the loan by
(B) at the election the borrower
(1) the average number of FTEs
per month employed during the
period beginning on February 15,
2019 and ending June 30, 2019,
or (2) the average number of
FTEs employed during the period
beginning January 1, 2020, and
ending February 29, 2020. For
seasonal employers, the period
described in (B) will be the period
beginning February 15, 2019,
and ending June 30, 2019.
EXAMPLE:
Total
forgivable
payroll and
other costs
in total salary or wages of any applicable
employee during the eight-week period
beginning on the date of the origination of
the loan that is in excess of 25 percent of
the total salary or wages of the employee
during the most recent full quarter in
which the employee was paid before this
eight-week period. For purposes of this
reduction, an applicable employee is any
employee who did not receive annualized
wages or salary for any pay period during
2019 in excess of $100,000.
To encourage businesses to rehire
employees or restore wages, the amount
of loan forgiveness will be determined
without regard to reductions in the
number of employees or reductions in
wages that occurred during the period
beginning February 15, 2020, and ending
on the date that is 30 days after the date
of the enactment of the CARES Act, if
the business eliminates the reduction no
later than June 30, 2020. For example, if a
business lays off 50 employees on March
31, 2020, and rehires all of them before
June 30, 2020, those 50 employees will
be deemed to have been employed for
purposes of calculating the average number
of FTEs during the eight-week period
beginning on the date of loan origination.
A business seeking loan forgiveness must
submit an application to their lender,
which shall include:
(A) (B)
Average number of FTEs
per month during eight-
week period beginning
on loan origination (1) Average number of FTEs per
month from Feb. 15, 2019 to June
30, 2019
OR
(2) Average number of FTEs from
Jan. 1, 2020 to Feb. 29, 2020
$1,000,000
X
300
÷
(1) 400
(2) 350
In this example, the forgivable amount
would be reduced to $857,143 ($1,000,000
x 300 ÷ 350).
The amount of loan forgiveness will also
be reduced by the amount of any reduction
•
Documentation verifying the
number of FTEs on payroll and
pay rates for the period beginning
February 15, 2020, and ending
June 30, 2020, including payroll
tax filings reported to the IRS