On March 31, 2020, the U.S. Department of the Treasury published further information regarding the implementation of the Small Business Administration’s (SBA) Paycheck Protection Program (PPP).
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provided for the $349 billion PPP to allow qualifying small businesses, other business concerns, nonprofits, veterans organizations, and tribal organizations with fewer than 500 employees (subject to exceptions for certain accommodations and food providers, certain franchises, and organizations in certain other industries subject to a different size standard established by the SBA), as well as qualifying self-employed individuals, independent contractors, and sole proprietors to obtain a loan from an SBA-approved lender to cover up to eight weeks of eligible payroll costs.
The PPP permits eligible borrowers that were in operation on February 15, 2020, to obtain loans in an amount equal to 2.5 times the average monthly payroll costs incurred during the one-year period prior to the date of the loan, up to $10 million. Payroll costs eligible to be covered include employee wages/salaries (capped at $100,000 per employee), certain vacation and leave benefits, certain healthcare benefits and insurance premiums, rent, utilities, interest on mortgage obligations, among others. Under the PPP, loan payments are deferred for at least six months (and up to one year), personal guarantees and collateral requirements are waived, borrower fees are waived, and the requirement for Small Business Act 7(a) loans that a borrower not be able to obtain credit elsewhere is also waived.
In addition, some or all of the loan may be forgiven in an amount equal to the sum of covered payroll costs, covered interest payments on a mortgage obligation, and covered rent and utility payments for the eight-week period after the loan is made, although the forgiveness amount will be reduced proportionally if the full-time employee headcount is reduced (compared to the prior 12 months or the first two months of 2020) or wages and salaries decrease. The period for eligible lenders to make PPP loans expires June 30, 2020.
Among the additional information published on March 31, 2020 are the following:
- The form of application for borrowers seeking PPP loans. (In order to verify eligibility, applicants will need to submit tax documentation, payroll information, among other items.)
- Confirmation that the application period for small businesses and sole proprietorships begins April 3, 2020, and that the application period for independent contractors and self-employed individuals begins April 10, 2020.
- Confirmation that all loans will have the same terms regardless of lender or borrower, and that any amount not forgiven will have a maturity date of two years following origination and an interest rate of 0.5%.
- Confirmation that it is anticipated that at least 75% of the forgiven amount must have been used for payroll.
Applications may be made through any existing Small Business Act 7(a) lender and through other lenders that participate or become approved to participate in the PPP. Lenders not currently certified by the SBA may apply to make PPP loans.
It is possible, however, that the SBA may issue additional or substitute guidance in the coming days that modifies or replaces certain of the terms set forth above.
Ballard Spahr LLP attorneys are well-prepared to assist lenders and borrowers in making and obtaining PPP loans, and are advising lenders and borrowers in navigating the PPP loan application and origination process.
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