CARES Act Guidance Now Available

March 31, 2020

Following passage late last week of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, President Donald Trump promptly signed the bill. On Tuesday, just a matter of days later, Treasury has come out with guidance on the Paycheck Protection Program (PPP) loans under the CARES Act. That guidance also includes an application for the loans which will be submitted directly to banks.

“I applaud lawmakers for passage of the bill, and the administration for their prompt action in getting the program up and running,” stated NSBA President and CEO Todd McCracken. “Time is of the essence – small businesses need help NOW, and the various assistance in the bill, namely the Paycheck Protection Program loans stand to offer significant help to America’s small-business community.”

While the guidance is a good first step, there are some pretty significant holes which need to be clarified, including:

The law, as NSBA interpreted it allowed for payroll calculations to include the first $100,000 in employee compensation, plus benefits. However in the recent guidance, it includes employee benefits as part of the compensation package capped at $100,000 which will result in smaller allowable loan sizes.

Additionally, the guidance is silent on how self-employed can calculate their “salary” under the payroll forgiveness provisions, meaning that they can get a loan, but the only foregiveable part of their loan would be rent and mortgage interest. Furthermore, the guidance stipulates that at least 75 percent of the forgiveness must be for payroll, so essentially the self-employed cannot really get loan forgiveness under this program at all.

One other discrepancy between the guidance and the law is that the loans were outlined in legislation as having a 10-year repayment schedule, however the guidance stipulates a two-year schedule.

Finally, and maybe most importantly, there was a change in the interest rate banks can charge for these loans from four percent to just 0.5 percent. While a lower interest rate is always welcome for small businesses, we are working to ascertain whether such a low rate will give banks sufficient incentive to make these loans.  

NSBA has registered these concerns with the administration and will continue to push for additional guidance and fixes to ensure the PPP loan program is more widely available to all small businesses.

As outlined in the CARES Act, the PPP loans are designed to help small businesses stay in business throughout the quarantine and are available to small employers with 500 employees or fewer. Loans can be up to 250 percent of an employer’s average monthly payroll during the covered four-month period with a maximum of $10 million.

Under the program, payroll costs include:

  • Salary, wages, and payment of cash tips (up to an annual rate of pay of $100,000);
  • Employee group health care benefits, including insurance premiums; retirement contributions; and covered leave.

The loans come with a 100 percent government-backed guarantee on these loans through Dec. 31, 2020 and no collateral is required. The PPP loan program also offers loan forgiveness in the following ways:

  • Funds spent during an 8-week period after the origination date of your loan on payroll costs;
  • Interest payments on any mortgage incurred prior to February 15, 2020;
  • Rent or lease payments under agreements signed prior to February 15, 2020; and
  • Payment on any utility for which service began before February 15, 2020.

NSBA has developed a FAQ for the small-business specific pieces of this and the Families First Coronavirus Response Act (FFCRA) which can be accessed here. Additionally, NSBA has published a new podcast detailing the CARES Act as well as new employer requirements under the Families First Coronavirus Response Act.

Please click here to access NSBA’s resource page on COVID-19 which includes a new poll, small-business profiles and much more.