The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in part, dedicates $349 billion to prevent layoffs and business closures while workers are required to stay home during the pandemic. The Act establishes a “Paycheck Protection Program” (PPP) to provide small businesses with an incentive to keep employees on the payroll. The Program also offers debt forgiveness if certain employee retention and pay benchmarks are met.
I PPP ELIGIBILITY
A. Lenders
The Act authorizes the SBA and U.S. Department of Treasury to extend authority to make PPP Loans to additional lenders beyond those already certified to make regular SBA 7(a) loans. This means that lenders do not have to currently be certified SBA lenders to participate in the PPP. Additional lenders approved by Treasury are only permitted to make PPP loans, not regular SBA 7(a) loans. The additional lenders must have necessary qualifications to process, close, disburse and service PPP Loans.
B. Borrowers
Small businesses in existence on February 15, 2020, which paid payroll taxes on employees or paid independent contractors include:
II. APPLICATIONS/CERTIFICATIONS
An eligible recipient applying for a covered loan must provide a good faith certification. The certification must state:
III. COVERED LOAN TERMS
A. Maximum Loan Amount
The loan amount available to an eligible recipient under the program is the lesser of a) two and one-half (2.5) times the average total monthly payments by the applicant for payroll costs incurred during the one year period before the date on which the loan is made; or b) $10 million.
B. Loan Maturity
Loan maturity shall be for a maximum of 10 years.
C. Interest Rate
Interest rate shall not exceed 4 percent.
D. Prepayment Penalties
A prepayment penalty is not allowed for any payment made on a covered loan.
E. Nonrecourse
The SBA Administrator shall have no recourse against any eligible recipient of a covered loan.
F. Collateral and Guarantee
Borrowers cannot be required to provide a personal guarantee for a covered loan, and no collateral can be required for the covered loan.
G. Covered Period
PPP loans must be made between February 15, 2020, and June 30, 2020. The deadline for applying for a PPP loan is June 30, 2020.
H. Loan Deferment /Secondary Market
PPP lenders must provide complete payment deferment relief for borrowers with PPP loans for a period of not less than 6 months and not more than 1 year. The deferment must include principal, interest, and fees, but interest accrues during the deferment period. If a PPP loan is sold on the secondary market and an investor declines to approve a deferral request, the SBA will purchase the loan so that the borrower can receive the deferral period above.
I. Payroll Costs
Payroll costs equal:
It also includes compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings or similar compensation from self-employment. This is also capped at a maximum of $100,000 per year, prorated for the covered period.
J. Allowable uses
Loan proceeds may be used for:
K. PPP Loan Forgiveness
The following costs may be forgiven during the eight – week period after the date the loan is issued:
1. Reduction in Workforce
The amount forgiven will be reduced proportionately by any reduction in employees retained compared to the prior year and will also be reduced by the reduction in pay of any employee beyond 25 percent of their prior year compensation
2. Exemption For Re–Hires
To encourage employers to rehire any employees who have already been laid off due to the COVID–19 pandemic, borrowers that re–hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period, if the employer eliminates the reduction in full–time equivalent employees and reduction in salary of such employees.
L. Grants
Small businesses applying for an SBA Econommic Injury Disaster Loan (EIDL) will be eligible for an Emergency Grant of up to $10,000 to be issued within three days of the application being received. Applicants must certify under threat of perjury that they believe they are eligible for the Emergency Grant. The amount received under the Emergency Grant would be subtracted from the amount forgiven under the PPP, if used for costs otherwise eligible for PPP Loan forgiveness.
M. PPP Interaction With Previous SBA Loans
The SBA administrator is authorized to purchase loans made before the date of enactment of the law and to cover payments for up to six months on behalf of the borrower. An applicant with an SBA disaster loan issued on or after January 31, 2020, has the option to refinance the loan into a PPP forgivable loan.
N. Fees and Penalties
During the covered loan period with respect to a covered loan, the SBA waives fees and penalties.
O. SBA Reimbursement for Processing PPP Loans
1. Reimbursement Amounts
SBA shall reimburse a lender authorized to make a PPP loan at a rate of:
The amount is based on the balance of the financing outstanding at the time of the disbursement of the PPP loan.
2. Fee Limits
An agent that assists an eligible borrower for preparing an application for a PPP loan may not collect a fee in excess of the limits established by the SBA.
3. Timing
A reimbursement shall not be made later than 5 days after the disbursement of the PPP loan.
P. Regulatory Capital
IV. ADDITIONAL RESOURCES
Additional resources relating to the CARES Act PPP can be viewed at:
https://www.uschamber.com/sites/default/files/023595_comm_corona_virus_smallbiz_loan_final.pdf?utm_campaign=NEWSBYTES-20200330&utm_medium=email&utm_source=Eloqua
https://www.sbc.senate.gov/public/_cache/files/9/7/97ac840c-28b7-4e49-b872-d30a995d8dae/F2CF1DD78E6D6C8C8C3BF58C6D1DDB2B.small-business-owner-s-guide-to-the-cares-act-final-.pdf