As millions of people all over the United States (and the world) fight this pandemic of COVID-19, the Federal government passed legislation designed to infuse the US market with liquidity. The CARES Act was signed into law last week and will be going into effect April 3, 2020.
What is the CARES Act, what does it offer, and should MSPs (in the United States) take advantage? All good questions…MSPAlliance has the answers.
Working with our strategic partners in the accounting profession, we have put together some guidance to help MSPs evaluate this legislation and ultimately make intelligent decisions. There is a lot of information floating around out there and not all of it is accurate. There is guidance coming out on a regular basis so please check back here often for current information.
Note: Please check in with your accounting profession on whether a loan under the CARES Act is right for your MSP business. Let’s get started.
Who is eligible?
This program is available only to US citizens and businesses with less than 500 employees. There are some exceptions so please with your accountant.
How much can I borrow?
The loan amount is based on a calculus roughly described as follows: the lesser of $10 million or 2.5 times your average monthly payroll for the previous 12 months.
Do I have to pay it back?
This will depend, but generally speaking, a large part of the loan can be forgiven if you meet the requirements. To summarize, if you continue to have payroll and make other qualified expenses during the period specified in the CARES Act legislation, those amounts will be forgiven. You won’t have to pay them back, and the loan amounts will not be considered taxable income.
The loan (if unforgiven) is for not more than 10 years and at an interest rate of not more than 4%. The Payroll Protection portion of the CARES Act specifies a .5% interest rate and a 2 year term for any unforgiven amounts of that loan.
SBA CARES Act Summary
If you want to read a great summary of the CARES Act from the Small Business Administration, you can view it here: SBA Loan Summary
April 3, 2020 Update – There are some banks requiring additional criteria in order to underwrite the loans. For example, one national bank is requiring business clients have an existing business lending relationship in order to be eligible to apply for the payroll protection loan. This is not across the board as many banks do not have this requirement. So, please check with your bank.
The other news is it seems most banks will not be submitting applications today due to lack of guidance. So, there should not be any risk of losing out on the program benefits; details should be coming soon as to how to proceed. Keep checking back here for more updates.
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