What You Need to Know about COVID-19 Small Business Loans

Loan Forgiveness Relief for Small Businesses

By: Sara Northcutt, CPA

As of May 18, 2020, the PPP Loan Forgiveness Application is now available on the SBA site. Apply here.

Small businesses are facing unprecedented challenges in adjusting to the outbreak of the COVID-19 global pandemic. Because of the limited resources of small businesses, they are facing significant economic challenges. The $2 trillion federal stimulus package includes a substantial amount of financial support for small businesses distributed through the U.S. Small Business Association. Read more about the Paycheck Protection Loan Program and Economic Disaster Loans in our article here. Some loans may be forgiven due to the companies’ circumstances.

Here is what you need to know about loan forgiveness:

  • Loan forgiveness will be for any amounts used during the eight weeks from loan origination for payroll costs, interest on mortgage debt, rent, and utilities. However, borrowers will need to provide documentation to support all payments for payroll, rent, mortgage interest, and utilities to qualify for loan forgiveness.
  • The amount that is forgiven will be reduced for businesses that lay off employees during the first eight weeks following the loan. This amount is determined by the ratio of the average full-time equivalent employees employed by the borrower per month for the period from February 15, 2020, to June 30, 2020, over the average full-time equivalent employees employed during the same period in 2019. Borrowers can elect to have the reduction calculated with the denominator as the average full-time equivalent employees employed per month from January 1, 2020, to February 29, 2020.
  • “Employee” for the loan forgiveness provisions is defined as any employee paid $100,000 or less in wages.
  • Loan forgiveness is reduced by the amount of any wage reduction more than 25% of any employee from the most recent full quarter, during which the employee was employed before February 15, 2020.
  • Workforce reductions for the period between February 15, 2020, and 30 days after this bill is enacted, are disregarded for the loan forgiveness calculations. This clarification is significant as the provision does not penalize employers who enacted workforce reductions immediately in the wake of the COVID-19 crisis so long as their workforce is restored by June 30, 2020.

Applying for Loan Forgiveness

As of May 18, 2020, the PPP Loan Forgiveness Application is now available on the SBA site. Apply here.

For more details on the resources available to small businesses, please visit the Coronavirus (COVID-19): Small Business Guidance & Loan Resources guide on the U.S. Small Businesses Administration website.

Paycheck Protection Program Application

The application and instructions for the Paycheck Protection Program (PPP) under the CARES Act was recently published by the Treasury Department. All businesses, including nonprofits, veterans organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors with
500 or fewer employees can apply starting April 3, 2020.

Questions? Aldrich is Here for You

As always, your Aldrich team is here to provide support for you however we can during these rapidly changing times. For further information, please contact your advisor. For more resources to help you navigate the developing impact of coronavirus on your business, visit our COVID-19 Resource Center.

This article is a broad overview of options available for small business loans in response to COVID-19 and provides general information to our clients and friends. It should not be relied upon for legal advice.

Meet the Author
Partner

Sara Northcutt, CPA

Aldrich CPAs + Advisors LLP

Sara Northcutt joined the firm in 2005 and has more than a decade of experience working on a wide range of clients, including financial lending, private equity, real estate, and other closely held businesses. Sara specializes in multi-state tax compliance. Sara received her Bachelor of Arts degree from Vanguard University of Southern California and did her… Read more Sara Northcutt, CPA

Sara's Specialization
  • Closely-held businesses
  • Certified Public Accountant
  • Strategic tax planning and compliance
Connect with Sara
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