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Forgivable “Paycheck Protection” Small Business Loans

Federally mandated paid sick leave and emergency paid family leave goes into effect on April 1st (originally April 2nd).  For many employers who are concerned about covering payroll costs moving forward, the CARES Act may provide significant relief via an expansion of the ability to obtain loans under Section 7(a) of the Small Business Act.  This act was signed into law by President Trump on March 27, 2020.   In short, it provides that if an employer maintains their employees through June 30, 2020, they can receive a loan that will be forgiven, in the amount spent on payroll, interest on mortgages, rent or utility payments during an 8 week period.

Specifically the “Loan Paycheck Protection Program” provides forgivable SBA business loans that will allow any businesses, private nonprofit, public nonprofit organization, franchisors, franchises and self-employed individuals which employ fewer than 500 employees to obtain a loan up to 2.5 times their monthly payroll costs measured over the prior twelve months, or $10 million, whichever is smaller. Payroll costs include salaries and certain employee benefits such as vacation, parental, family, medical, and sick leave; allowances for dismissal or separation; payments for group health care benefits, including insurance premiums; and retirement benefits.  Note that federally mandated sick leave and emergency family leave, which are eligible for tax credits, are excluded and may not be used for this loan.  Also specifically excluded in “payroll costs” is the pro-rated portion of employee compensation exceeding 100,000 annually.

The loan forgiveness is equal to the amount spent by the borrower during an 8-week period after the origination date of the loan on payroll costs (subject to the pro-rated limitation on compensation exceeding $100,000 referenced above), interest payment on any mortgage incurred prior to February 15, 2020 (but not prepayments or principal payments), payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020 (electric, gas, water, transportation, phone & internet).

Loan forgiveness will be reduced proportionally by any reduction in employees.  This will be, generally calculated by comparing the number of employees at the time of the loan to either, (1) the number of employees between February 15, 2019 and June 30, 2019; or (2) the number of employees between January 1, 2020 and February 29, 2020. However, if you re-hire employees before June 30, 2020, you will generally not have to reduce the forgiveness amount.  The amount eligible for forgiveness will also be reduced because of reduction in pay of 25% or more to employees earning less than $100,000 per year.

Any loan amounts forgiven under the CARES Act shall be excluded from gross income for tax purposes.  A business is not eligible to receive these loans if they are otherwise ineligible to receive an SBA loan or if the business receives an economic injury disaster loan for the same purpose.

The loans will be administered by local banks.  According to the SBA website, turnaround times for “express loans” will be 36 hours ($1,000,000 max loan).   There will be no upfront and annual fees.

We expect significant additional guidance will be issued by the Treasury Department and/or Small Business Administration in the next 48 hours.  Employers are strongly encouraged to contact their accountants to confirm their eligibility for these loans.

© 2020 Giordano, Halleran & Ciesla, P.C. All Rights Reserved


About this Author

Jay S. Becker, Giordano Law Firm, Labor & Employment, Cannabis Law, Corporate Labor Relations Employment Law and Litigation

Jay, chair of the Labor and Employment Practice Area, devotes his practice to labor relations and employment law and litigation on behalf of management. His experience includes conducting trials, hearings, arbitration and mediation sessions; responding to state and federal administrative agency charges; collective bargaining; drafting employment-related corporate documents such as restrictive covenants, employee handbooks, employment agreements, various stock and compensation plans, and separation/severance agreements. He counsels employers on all employee relations issues including, but...

Jeri L. Abrams, Giordano Halleran, Employment Documentation Lawyer, Workplace Litigation Attorney,Labor & Employment

Jeri focuses primarily on employment law, with an emphasis on drafting and negotiating complex employment-related documentation, such as executive employment, consulting, restrictive covenant, commission, bonus, retention, change-in-control and severance agreements. Jeri counsels employers on a broad range of employment matters, including hiring, disciplining and terminating employees, family and medical leaves, disability leaves and accommodations, anti-discrimination and anti-retaliation laws, wage and hour compliance, and reductions in workforce. She works closely with management, in-house counsel, and human resources personnel in the development and implementation of employment policies and handbooks that comply with applicable law and are consistent with the employer's unique practices and organizational culture. Jeri also advises clients on the employment aspects of M&A deals and other corporate transactions.

Representative Matters 

  • Fortune 300 Company: Represented client in 4 separate recent acquisitions; drafted and negotiated complex executive employment agreements between the client and the founder of the acquired businesses, each of whom were integral to the value of the business being purchased.

  • Publicly-held Pharmaceutical Company: Represented client during a major workforce reorganization, which included 2 plant closures, staff relocations and a series of 9 reductions in workforce; worked closely with the client's legal and human resources departments to ensure the orderly separation of more than 600 employees and to minimize associated legal risks and business disruption; provided advice related to federal and state WARN act issues, wage and hour laws, OWBPA requirements and severance arrangements; prepared and negotiated severance agreements.

  • Publicly-held REIT: Advised client on a wide-array of unique employment matters in the context of the "spin-off" of one of its divisions.

  • Private Equity Firm: Represented large private equity client in connection with a high risk and sensitive termination of the CEO of one of its portfolio companies.

  • Private Equity Firm: Represented private equity firm in the drafting and negotiation of employment agreements for the senior executives of a large portfolio company.

Ari G. Burd, Shareholder, Giordano Law Firm, Labor & Employment, Cannabis Law, Health Care

Ari devotes his time to assisting and defending employers with regard to traditional employment issues. He frequently counsels employers for compliance with New Jersey laws and has extensive transactional and litigation experience.

Ari has litigated employment matters throughout the state, having made appearances in almost every Superior Court in New Jersey, as well as before both Federal District Courts in New Jersey and the Federal and State Courts in New York.  These actions have involved a diverse range of claims such as wrongful discharge, discrimination, harassment,...

Christopher J. Marino Litigation Attorney Giordano Halleran Ciesla

Chris has a bi-coastal litigation practice focusing on general commercial and business disputes, trademark law, copyright law, trade secret law and unfair business practices, and entertainment and media law. He has extensive experience litigating and resolving general commercial and intellectual property disputes, and also provides transactional and business counseling in the areas of copyright, trademark, trade secret, unfair competition and business practices, and general commercial law. Chris also has experience serving as outside general counsel, advising clients in the area of...