Many of our clients have reached out to us expressing interest in the SBA’s new Paycheck Protection Program (PPP). Set forth below is a brief summary of the key provisions to help you determine if a PPP loan may be right for your business.
What is the PPP program?
The PPP was passed as part of the CARES Act to help businesses stay afloat and pay their workers during the COVID-19 crisis. It presents a unique opportunity for small businesses to receive a forgivable, low interest rate loan to help pay for payroll costs, rent, utilities, and certain other permissible expenses.
Who can apply?
Businesses with fewer than 500 employees who, as of February 15, 2020, were in operation and had employees.
How large of a loan can my business receive?
Loan size is equal to 2.5 times the company’s average monthly payroll cost. The loan is capped at $10M.
How do I calculate payroll costs?
Payroll costs include (i) salaries, wages, commissions and tips (capped at $100K on an annualized basis for each employee); (ii) employee benefits; and (iii) state and local taxes assessed on compensation. Amounts paid to independent contractors are not included in the calculation.
What can I use the loan proceeds for?
Loan proceeds can be used for (i) payroll costs, (ii) rent under lease agreements in force prior to February 15, 2020, (iii) interest on mortgage obligations incurred before February 15, 2020, (iv) utilities for service commenced prior to February 15, 2020, (v) interest on any other debt obligations incurred prior to February 15, 2020, and (iv) refinancing an SBA EIDL loan.
What are the loan terms?
The loan will bear interest at 1.0% and have a term of two years. All principal and interest payments are deferred for 6 months. Interest will accrue during the 6-month deferral period. There are no prepayment penalties and no personal guarantees are required.
How does loan forgiveness work?
All principal and interest accrued under the PPP loan will be forgiven with respect to the amount spent by your business on permitted purposes during the 8-week period immediately following receipt of the loan proceeds, provided that (i) no more than 25% of the loan proceeds are used for non-payroll costs and (ii) employee headcount and compensation levels are maintained. The amount of loan forgiveness will be reduced if you (A) decrease your full-time employee headcount; or (B) decrease salaries and wages by more than 25% for any employee making less than $100K. However, you will have until June 30, 2020, to restore the company’s full-time employment and salary levels for any reductions occurring between February 15, 2020 and April 26, 2020. You will not be taxed on the portion of the loan forgiven.
In order to have your loan forgiven, you will have to request forgiveness from your lender and provide the lender with documentation proving that (i) your use of funds was in compliance with the guidelines set forth above for forgiveness and (ii) headcount and salary levels were retained or timely restored.
When can I apply?
Now. The program runs from April 3, 2020 through June 30, 2020. Please note that funding is capped so it is best to apply as soon as possible.
How do I apply?
You should reach out to your lender so that they can tell you exactly what they need to process your loan application. At a minimum, you will need to compile payroll documentation for 2019 to provide evidence for the size of the loan you are requesting and complete the PPP loan application form. The PPP loan application can be found here:
Can I apply for more than one PPP loan?
No.
When will I receive my loan proceeds?
Timing on receipt of funds is unclear at this time. Your lender will have a better idea of when funds will be distributed.
Where can I learn more?
The Treasury Department and the SBA each have websites with materials providing further details related to PPP loans. These sites are listed below.
Treasury Department - https://home.treasury.gov/policy-issues/top-priorities/cares-act/assistance-for-small-businesses
For further information, contact Chris Fonss at cpf@fellplaw.com