On Thursday April 2, 2020, the Treasury Department issued an interim final rule regarding the Paycheck Protection Program. The rule contains important provisions regarding eligibility for this program, as well as general information regarding its logistics.
One key point of guidance this final rule issues is regarding the maximum loan amount a business can apply for. This five-step process is illustrated as such:
Step 1: Aggregate payroll costs from the last 12 months for employees who are US residents;
Step 2: Subtract compensation in excess of an annual salary of $100,000;
Step 3: Divide the total by 12 to determine average monthly payroll;
Step 4: Multiply the average monthly payroll by 2.5;
Step 5: Add the outstanding amount of any Economic Injury Disaster Loan made between January 31, 2020 and April 30, 2020, less the amount of any advance under an EIDL COVID-19 loan (EIDL advances may be up to $10,000 and do not have to be repaid.)
It should be noted that the term “payroll costs” is interpreted to include health care benefits.
In terms of loan forgiveness, the entire balance of the loan, including interest, can be forgiven so long as the money is used for enumerated purposes. However, no more than 25% of the amount can be used for non-payroll costs in order to be forgiven. If more than 25% of the amount is used for non-payroll purposes, the amount of the loan that is forgiven will be reduced.
This program is operated on a first-come, first-served basis. The loans carry a 1% interest rate and a maturity date of two (2) years. Loan payments are deferred for six (6) months following disbursal of the loan; however, interest will accumulate during this period.