Loan Forgiveness Under The CARES Act: The What & How

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March 26, 2020
Andrew Podgorny
SmithAmundsen Fianancial Services Alert

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The CARES Act enacts a new loan program through the Small Business Act, the Paycheck Protection Program (the “Program”), to provide eligible borrowers with loans to help cover costs related to the COVID-19 emergency. Under the Program, borrowers are eligible for loan forgiveness up to the principal amount of the loan.

How do I receive forgiveness on my loan?

Borrowers are eligible for loan forgiveness equal to the amount of costs incurred and paid during the 8-week period beginning on the loan origination date for:

To receive loan forgiveness, the borrower must submit an application to the lender servicing the loan with appropriate verifying documentation, a certification by an authorized representative, and other documentation required by the SBA. Loan forgiveness will not be given in the absence of such documentation. Lenders must make a decision on loan forgiveness within 60 days of receiving the borrower’s application.

Borrowers with tipped employees may receive forgiveness for additional wages paid to those employees.

What are payroll costs?

Payroll costs include:

Payroll costs do not include:

Are there particular considerations or limitations I should be aware of?

To maximize loan forgiveness, you should consider the following:

What happens to loan amounts which are not forgiven?

Any remaining balance will be carried forward as a loan under the Program with a maximum maturity of 10 years from the date the borrower applies for loan forgiveness. Interest rates on loans under the Program cannot exceed 4%.

Are there any federal income tax implications?

Amounts forgiven are excluded from gross income for federal income tax purposes.

Where can I go for additional information?

For additional information, please check out SmithAmundsen’s COVID-19 Resource Center.