Big Picture
The Paycheck Protection Program is intended to provide American small businesses with 8 weeks of cash-flow assistance through 100% federally guaranteed loans.
- There is no cost to apply.
- The funding is meant to help retain workers, maintain payroll, and cover rent/mortgage/utility expenses.
- The loan is intended to help small business owners cover expenses during a 10-week period after the loan is executed.
- The loan can be forgiven, essentially becoming a non-taxable grant. This program is more extensive than, and is in addition to, the SBA Economic Injury Disaster Loan (EIDL) program.
Program Qualifications
Small businesses, sole proprietorships, independent contractors, and self-employed individuals can all qualify. Qualifications will be determined from tax filings.
Funds for Payrolls, Mortgage, Leases, and Utilities
Borrowers must acknowledge that the funds will be used to retain workers and maintain payroll or to pay certain bills. Funds used for other purposes will not be eligible for forgiveness.
More specifically, the funds can be used for:
- Payroll and commission payments
- Group health care benefits/insurance premiums
- Mortgage, rent, and lease payments
- Utilities
- Interest on any other debt obligations that were incurred before the covered period
Funds Up To 2.5 Times Qualified Monthly Expenses
Documentation will be required on payroll, mortgage, rent, and utility payments over the previous 12-month period. The SBA will calculate the monthly average cost of those expenses. The maximum amount the SBA can offer is 2.5 times that monthly average cost, but no more than $10 million. Different rules apply for seasonal employees and new businesses.
While the CARES Act also expands eligibility for access to EIDL, loans made under the PPP will disqualify businesses from using EIDL SBA loan proceeds to cover the same payroll expenses.
Loan Forgiveness
In the 8 weeks following your loan signing date, all expenses related to the following can be forgiven:
- Payroll—salary, wage, vacation, parental, family, medical, or sick leave, health benefits.
- Mortgage interest—as long as the mortgage was signed before February 15, 2020.
- Rent—as long as the lease agreement was in effect before February 15, 2020.
- Utilities—as long as service began before February 15, 2020.
The SBA will have strict documentation requirements for loan forgiveness including payroll tax filings, cancelled checks and receipts, certifications from business owners and possibly other documentation. Lenders must make a decision within 60 days of forgiveness application submissions.
In order to qualify for forgiveness, loan recipients must commit to maintaining an average monthly number of full-time equivalent employees equal to or above the average monthly number of full-time equivalent employees during the previous 1-year period. If a business is below that number or reduces wages by more than 25%, the amount that can be forgiven is reduced. Businesses that rehire employees that were previously laid off or restore any decreases in wage or salary that were made before February 15th will not be penalized for having a reduction in employees or wages, as long as the changes are made by June 30, 2020.
The SBA has 30 days to issue final official guidance regarding loan forgiveness.
SBA Loan Deferments
Requires the SBA to pay the principal, interest, and any associated fees that are owed on the covered loans (including 7(a) and 504 loans) for a 6-month period. Loans that are already on deferment will receive 6 months of payment by the SBA beginning with the first payment after the deferral period. Loans made in the first 6 months after enactment will also receive a full 6 months of loan payments by the SBA. PPP loans are not covered.
Regulations in 15 Days from Enactment
SBA is required to establish detailed regulations no later than April 11, 2020.
Contact your banker to get in line if you think you might want to apply for a loan under the PPP.
April 2, 2020
