For small businesses, the Paycheck Protection Program is one of the most attractive elements of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
For small businesses, the Paycheck Protection Program is one
of the most attractive elements of the Coronavirus
Aid, Relief, and Economic Security (CARES) Act. In an effort to lessen the economic impact of the coronavirus
(COVID-19) pandemic, the CARES Act amends Section 7(a) of the Small Business
Act to establish a new guaranteed, unsecured loan program that will
provide $349 billion in total 7(a) lending from February 15 through June 30 for
fiscal 2020.
Loan Eligibility
The Paycheck Protection Program is retroactive to February
15, 2020, which means that businesses may use the funds to rehire employees
that have already been laid off. Loans are available to:
Any business, nonprofit, veterans’ group, or
tribal business with 500 or fewer employees, or a number set by the SBA for the
relevant industry
Sole proprietors, independent contractors, and
eligible self-employed workers
Restaurants, foodservice, caterers, and hotels
that employ 500 or fewer employees per physical location
Recipients may use the loans to cover the following, subject
to certain limitations:
Payroll costs, employee salaries, commissions,
or similar compensations
Costs related to group health care benefits
during periods of paid sick, medical or family leave, and insurance premiums
Mortgage interest payments, rent, and utilities
Interest on any other debt obligations that were
incurred before February 15
Loan Terms
Under the Paycheck Protection Program, the maximum loan
amount is the lesser of 2.5 average months’ eligible payroll costs or $10,000,000. In calculating
average monthly payroll costs, business should use the average monthly eligible
payroll costs incurred during the one-year period before the date on which the
loan originates. Notably, the calculation must not include annual employee
salaries in excess of $100,000 per year and any qualified sick and family leave
wages for which a tax credit is allowed under the Families
First Coronavirus Response Act (FFCRA).
Lenders must defer all payments, including principal,
interest, and fees, that are otherwise due for a minimum of six months and a
maximum of 12 months. The interest rates for Paycheck Protection loans may not
exceed four percent. Loans will have a maximum maturity of 10 years following a
borrower’s application for forgiveness.
Borrowers are not required to provide collateral or personal
guarantees. However, they must provide a good faith certification that the loan
is needed to address the economic uncertainty caused by COVID-19 and that loan
funds will be used maintain payroll and make other necessary payments.
Borrowers must also certify that they are not receiving funds for the same uses
via another Small Business Association (SBA) program. Furthermore, the SBA will
have no recourse against any individual shareholder, member or partner of a
loan recipient for non-payment, except to the extent that an individual uses
the loan proceeds for an unauthorized purpose.
Loan Forgiveness
Loan recipients will be eligible for loan forgiveness for an
eight-week period after the loan’s origination date. The forgiveness amount is equal
to the sum of the following costs incurred during that period:
The amount forgiven can’t exceed the amount borrowed. In
addition, loan forgiveness will be proportionally reduced if the average number
of employees is reduced during the eight-week forgiveness period as compared to
the same period in 2019. More specifically, the amount of loan forgiveness will
be reduced by the amount of any reduction in total employee salary or wages
during the covered period that is in excess of 25 percent of the total salary
or wages. However, this penalty will not apply to employers that reduced salary/wages
in response to be pandemic but then raised them by June 30, 2020.
Steps to
Take Now
The SBA has not yet released funds to lenders. However, there are several steps businesses can take to get the ball rolling. The first step is to prepare all the payroll documentation you will need to support your loan application and determine what you funding you plan to seek. If you need any assistance in regard to the Paycheck Protect Act or any of the Federal programs now available, please contact us. We have a dedicated team of attorneys here to help.
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