Mechanics of CARES loans

Client wants $100,000 loan, per CARES Act.  This is the first for us and not sure how the mechanics work:

1 - My main question is if participant chooses to defer payments and the first payment would normally be due in October, 2020, are payments deferred only until January, 2021, or do we defer all repayments til a year from October (ie October, 2021)?

2 - I understand the Act allows for deferment of payments for 12 months, but I am not sure what that means because I believe you can also extend the term.  Do they make double payments after the 12 months until all the deferred payments are paid, or do we just tack them on to the end of the loan?

3 - Do I prepare an amortization schedule as I would normally,  starting in October, 2020, and re-amortize when they begin payments, or do I start the amortization schedule with the date they are to start payments?

4 - I understand interest accrues while the repayments are deferred.  Is this then added to prinicpal before amortizing/re-amortizing the loan and spread over the entire 5 years? 

As you may be able to see, I am extremely unclear on the actual mechanics of the loan repayment - how do we write the note and how do we amortize the loan?

1)  The IRS issued guidance on this point - which provides a "safe-harbor" and indicates there are other "reasonable alternatives" (and then lays out ONE such reasonable alternative as an example.  The safe harbor is to defer until 1/1/2021 and reamortize as of that point in time, with all payments due as scheduled.  The ONE reasonable alternative is defer payment due in 2020 until 10/1/2021, but require regular payments due in 2021 to be paid as scheduled.  In this alternative, you would reamortize as of 10/1/2021.  Another alternative discussed (but not referenced by the IRS in the guidance - but of which they were aware) would be to stop payment from 10/1/2020 through 10/1/2021, and reamotize then.

2) The Act allows for an extension  of the term of the term of the loan by the amount of the deferment period - up to 12 months.

3) Yes, prepare an amort schedule, and reamortize at the appropriate time.  Keep in mind, the participant can restart payment if they choose prior to the end of the deferment period.

Yes, but remember that the term of the loan is extended by the period of deferment - so reamortize over the remaining term, as extended.

Wow.  As clear as mud!

On ‎9‎/‎11‎/‎2020 at 6:17 PM, Cynchbeast said:

Wow.  As clear as mud!

I think Mojo's explanation is clear, but building on it let me try to simplify among the three approaches in his first paragraph:

* If you want super simple and are not worried about the participant's ability to start paying as of 1/1/2021,  go with his first alternative.

* If you enjoy middle school math for the heck of it and want to drive the participant crazy, go with #2.

* If you want to give the participant a break on repayment and still keep it pretty simple, go with #3.