The Basics of Forgivable Loans for Businesses CARES Act

By: Angel Berberena, Esq.

March 31, 2020

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") provides substantial economic stimulus to individuals, businesses, and hospitals because of the Coronavirus (COVID-19) pandemic. Under Title I of the CARES Act, qualifying businesses will be able to receive no-fee "small business interruption loans" at an interest rate not exceeding 4 percent without the need to provide personal guarantee or collateral.

A qualifying business includes "any business concern, nonprofit organization, veteran's organization, religious organizations or Tribal business" that employs no more than 500 employees, or a greater number based on the size standard applicable to the industry. This includes sole proprietors, independent contractors, and self-employed individuals. Accommodation and Food Services Industry businesses may be eligible if they have no more than 500 employees per physical location.

The amount of the loan is capped at 2.5 times the average monthly payroll costs as defined by the statute, up to a total of $10 million.

Payroll costs includes : i) salaries, wages, commissions, or similar compensation; ii) payment of cash tip or equivalent; iii) payment of vacation, parental, family, medical, or sick leave; iv) allowance for dismissal or separation; v) payment required for the provision of group health care benefits, including insurance premiums; vi) payment of any retirement benefits; vii) payment of state or local tax assessed on the compensation of employees; and viii) the sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation that is in an amount that is not more than $100,000 in 1 year, as prorated for the covered period.

Payroll costs do not include : i) the compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period; ii) taxes imposed or withheld under chapters 21, 22 or 24 of the Internal Revenue Code of 1986 during the covered period; iii) any compensation of an employee whose principal place of residence is outside of the United States; iv) qualified sick leave wages and qualified family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.

The use of these loans is limited to: i) payroll costs; ii) costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums; iii) employee salaries, commissions, or similar compensation; iv) payments of interest on any mortgage obligation (does not include any prepayment of or payment of principal on a mortgage obligation); v) rent; vii) utilities; viii) interest on any other debt obligations that were incurred before the covered period.

These loans are eligible for forgiveness up to the amount spent by the borrower during an 8-week period after the origination date on: i) the payroll costs for workers making less than $100,000; ii) mortgage interest payment; iii) rent; and iv) and utilities payments.

The amount forgiven may be reduced proportionally by: i) any reduction in full-time employees retained compared to previous levels; and ii) the decrease in pay of any employee (excluding employees with an annualized rate of pay of more than $100,000) beyond 25% compared to previous compensation.

There is an exemption to the reduction in forgiveness if an employer reduces the number of its employees or compensation between February 15, 2020 and April 26,2020, and the employer were to rehire its personnel and return the adjusted salary by June 30, 2020.

The deadline to apply is June 30, 2020, at any lending institution approved to participate by the Small Business Administration or the Department of Treasury. Additional regulations and guidelines are expected regarding other terms and conditions of the program. The applicability of some of the statutory provisions may vary depending on the circumstances of a given business. All businesses would be well-advised to seek counsel to explore whether and how this program assists its sustainability in these trying times.

Goldman Antonetti & Córdova, LLC stands ready to assist you and your business to adjust to Puerto Rico's regulatory and legal changes. If you need further assistance in this area, please contact any of the following members of our Firm (note that during this emergency, it will be easier for you to communicate with us through electronic mail, as provided below) :

Angel Berberena 787.759.4143
Howard Pravda 787.759.4101
Luis Antonetti 787.759-411
Vicente Antonetti 787.759.4112
Romel Meléndez 787.759.411
Luis Ortiz Abreu 787.759.4110
Gabriel Quintero 787.759.4130
Javier Vazquez 787.759.4113

Disclaimer:Although the information included in this document may concern legal issues, it is not a legal opinion or professional advice and clients shall not use it as such. We assume no responsibility or liability of any kind for any information contained herein, and we expressly disclaim all liability for any claim for damages arising from the use, reference to, or reliance on, such information. If legal or other expert assistance is required, the services of a competent professional should be sought.

Goldman Antonetti & Córdova, LLC | 787-759-8000 | www.gaclaw.com