By: Sharon C. Lincoln

The U.S. Department of the Treasury (“Treasury”) released guidance in the form of a Q&A fact sheet at the end of the day on Tuesday March 31, 2020 providing preliminary answers regarding the Paycheck Protection Program (“PPP”) provided under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).  The fact sheet is available here.

The following is a brief summary of the guidance.

WHEN and WHO:

Applications for small businesses and sole proprietors may be submitted to SBA approved lenders starting Friday April 3.  For this purpose, the small business category includes 501(c)(3) charitable nonprofits, 501(c)(19) veteran’s organizations, and tribal governments, as well as businesses in certain industries that have more than 500 employees so long as they meet applicable SBA employee-based size standards for those industries.

Applications for independent contractors and self-employed individuals may be submitted to SBA-approved lenders starting Friday April 10.  

The guidance notes that organizations that would like to avail themselves of relief in the form of a PPP loan are advised to apply as soon as possible, since there is a cap on the amount of funding available under this program.

WHERE TO APPLY:

Currently, applications may be made to any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating.

Once other lenders who want to participate are approved, applicants may apply for loans with them as well.

HOW TO APPLY:

The application form is here. 

Applicants must provide payroll documentation and provide certain certifications as to the need for the loan and as well.

LOAN TERMS:

Interest rate on PPP loans is set at a 1.0% fixed rate.

Payments deferred for 6 months.

The loan term is 2 years and there is no prepayment penalty.  Note that the CARES Act specified that PPP loans could have a maximum term of 10 years – it appears as though Treasury has settled on a shorter fixed term.

No personal guarantees or collateral are required to secure the loan.

MAXIMUM LOAN AMOUNT:

Loans may be for up to two months of average monthly payroll costs from the last year plus an additional 25% of that amount, subject to a $10 million cap.  Seasonal or new businesses will use a different applicable time period for the calculation of average monthly payroll. 

Payroll costs are capped at $100,000 annualized for each employee.

FORGIVENESS:

Borrowers may apply for loan forgiveness to the extent that they use the loan proceeds for payroll costs, mortgage interest, rent, and utilities payments over the 8 week period following receipt of the loan.  Notably, the guidance states that not more than 25% of the forgiven amount may be for non-payroll costs, a limitation that is not in the CARES Act.

The guidance confirms that the amount of the loan forgiven will be reduced if the borrower’s workforce or payroll is reduced. 

To request loan forgiveness, borrowers will need to submit a request to the lender that is servicing the loan. The request must include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. 

The lender must make a decision on the forgiveness within 60 days. 

Should you need assistance or have any questions concerning the CARES Act, contact Sharon C. Lincoln at lincoln@casneredwards.com or your Casner & Edwards attorney