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SBA Covid-19 Paycheck Loans

LoFaro & Reiser, LLP is assisting New Jersey business owners and sole proprietors in applying for SBA emergency loan funding under the Paycheck Protection Program (“PPP”).  Our office is fully equipped to operate remotely, and our New Jersey business lawyers are available for digital video-conferencing through Skype and Zoom. 

The new law, which is also known as the CARES Act, is aimed at offering incentives to businesses to continue employing workers during the coronavirus pandemic. These incentives include non-guaranteed loans to fund payroll, rent, utilities and other expenses for the limited period of February 15, 2020 to June 20, 2020. If certain criteria are met the loans may be fully or partially forgiven.Covid NJ Business Lawyers

When can I apply for the PPP?

  • Starting April 3, 2020, small businesses and sole proprietorships are eligible to apply for and receive loans to cover payroll and other certain expenses through existing SBA-approved lenders.
  • Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover payroll and other certain expenses through existing SBA lenders. 

Who is eligible to apply for a PPP loan?

  • Businesses and non-profits with no more than 500 employees.
  • Sole proprietorships
  • Independent contractors

are eligible for these loans if they were operating on February 15, 2020 and had employees or paid independent contractors. Certain businesses in certain industries may be eligible for these loans even with more than 500 employees.

What is the amount and key terms of each loan?

The amount of each loan is determined on the recipient’s payroll costs per month (averaged over the course the previous year) times 2.5—up to a maximum amount of $10 million. Under recent U.S. Treasury guidance, the interest rate for these loans is fixed at 0.50 percent, and the loans are due after two years. All payments are deferred for 6 months, however, interest will continue to accrue over this period.

No collateral or personal guarantees are required.

On March 31, 2020 the SBA published a Quick Preparation Guide that sets forth specific guidelines relating to the PPP.

The Act defines the term “payroll costs” to include:

  • The sum of all compensation paid to an employee, such as salaries, wages, commissions, payment for vacation, parental, family, medical or sick leave, payment required for the provisions of group health care benefits, including insurance premiums, retirement benefits, or payment of State or local tax assessed on the compensation of employees.
  • For sole proprietorships or independent contractors, such costs are not to exceed $100,000 in 1 year, as prorated for the Covered Period.
  • Limits on payroll costs covered. The definition of payroll costs specifically excludes individual employee compensation in excess of $100,000 per year (as prorated), taxes imposed or withheld under chapters 21, 22 or 24 of the Internal Revenue Code, any compensation to an employee whose principal residence is outside of the U.S., qualified sick leave wages and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.

Loan Deferral and Forgiveness

  • Six months to 1 year deferral. Loans made during the Covered Period (February 15, 2020 to June 30, 2020) are eligible for repayment deferral for six months to one year.
  • The following loan amounts will be forgiven in the Covered Period:
  • Payroll costs conditioned on payroll continuity (not to include compensation in excess of $100,000 per year for any individual employee)
  • Rent
  • Utilities (‘covered utility payment’ means electricity, gas, water, transportation, telephone, or internet access
  • Interest on mortgages
  • Interest on any other debt incurred before Covered Period.

Reduction in Loan Forgiveness

  • The goal of CARES ACT is to avoid layoffs so there is a penalty or reduction in the loan forgiveness if you reduce the number of full-time employees during the covered period.
  • The forgiveness calculation will compare the average total number of full-time employees during the Covered Period to either (the borrower has the option of choosing):

(1) average number of full-time employees for the period February 15, 2019 to June 30, 2019; or

(2) the average number of full-time employees beginning on January 1, 2020 and ending on February 29, 2020.

The loan forgiveness is determined by the percentage equal to the difference obtained by subtracting the number of full-time covered employees from the selected period divided by number of full-time employees during selected period.

  • The forgiveness calculation will also be reduced by the amount of any reduction in total salary or wages of a full-time employee that exceeds 25% of their total salary during the most recent full quarter during which the employee was employed before the Covered Period.

Contact our New Jersey business lawyers today about how to apply for emergent funding under the PPP. 

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