The CARES Act–Paycheck Protection Program

Dunlap Law Insights

The Paycheck Protection Program is a significant piece of the recently-passed Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). It is designed to help nonprofit and for‑profit businesses with less than 500 employees cover payroll and other expenses.

Under the Program, small businesses may receive cash-flow assistance in the form of loans administered through banks and credit unions. Loan proceeds may be used to cover payroll, mortgage and debt interest, rent, and utilities.

To qualify, the borrower must have been in operation on February 15, 2020 and had employees for whom it paid salaries and payroll taxes. The borrower must certify that “the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations.”

Loans are available in an amount up to 2.5 times monthly “payroll costs” over the past year, with a cap at $10 million.

“Payroll costs” include:

  • wages, commissions, salary, and similar compensation to employees;
  • cash tips or the equivalent;
  • vacation, parental, family, medical, or sick leave;
  • allowances for dismissal or separation;
  • group health care benefits and premiums; and
  • state or local taxes assessed on employee compensation.

“Payroll costs” do not include:

  • employee annual salaries in excess of $100,000;
  • employer Social Security payroll taxes;
  • compensation for employees living outside the United States; or
  • qualified sick leave or family medical leave for which a credit is available under Families First Coronavirus Response Act.

Generally, no personal guarantees or collateral are required. Usual closing fees are waived. Interest rates may not exceed 4 percent. Payments are deferred for at least 6 months, but not more than 1 year. Once repayment starts, loans have a maximum maturity of 10 years.

The loans may be forgiven, beginning June 30th, if the proceeds are used for payroll, interest payments on mortgages, rent, or utilities. The forgiven amount will be tax free. However, the forgiven amount may be decreased by a reduction in workforce or in salaries, or wages paid during the covered period. This reduction may be avoided if employer rehires or increases employee pay within the time-period allotted.

We encourage you to consider the Paycheck Protection Program while planning for your cash-flow needs over the next months. The best place to start will be your business lender. For legal advice specific to the operation of your Minnesota business, please contact us at Dunlap Seeger.