The $2.2 trillion coronavirus stimulus bill enacted by Congress on March 27 provides immediate cash assistance to small businesses that keep their employees or recall employees they have furloughed or laid off due to financial hardships related to COVID-19.  The money is available through a Small Business Administration (SBA) loan program that allows businesses to keep the loan proceeds as a grant for eligible expenses, including payroll, for the period between February 15 and June 30, 2020.

This program, called the Paycheck Protection Program (PPP), is a powerful tool for businesses with fewer than 500 employees to get immediate assistance with meeting operating expenses, with the prospect of not having to repay some or all of the loan.  It’s also available for nonprofits.

Here are the highlights of the program:

Maximum Loan Amount

• The PPP raises the maximum amount for an SBA loan by 2.5x the average total monthly payroll cost, or up to $10 million.  The interest rate may not exceed 4%.

Qualified Costs

• Payroll costs

• Continuation of health care benefits

• Employee compensation (for those making less than $100,000)

• Mortgage interest obligations

• Rent on any lease in force prior to February 15, 2020

• Utilities

• Interest on debt incurred before the covered period

Businesses Eligible to Obtain These Loans

• Businesses with fewer than 500 employees.

• Small businesses as defined by the Small Business Administration (SBA) Size Standards at 13 C.F.R. 121.201.

• 501(c)(3) nonprofits, 501(c)(19) veteran’s organization, and Tribal business concern described in section 31(b)(2)(C) of the Small Business Act with not more than 500 employees.

• Hotels, motels, restaurants, and franchises with fewer than 500 employees at each physical location without regard to affiliation under 13 C.F.R. 121.103.

• Businesses that receive financial assistance from Small Business Investment Act Companies licensed under the Small Business Investment Act of 1958 without regard to affiliation under 13 C.F.R. 121.10.

• Sole proprietors and independent contractors.

Loan Forgiveness

All or a portion of the loan may be forgivable, and debt service payments may be deferred for up to one year.  The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year and reduced by the reduction in pay of any employee beyond 25% of their prior year compensation. To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that rehire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.

Application Process

Current lenders through the Small Business Administration 7(a) are authorized to make determinations on borrower eligibility and creditworthiness without going through the SBA.  These lenders can be found here. For eligibility purposes, lenders will not be determining eligibility based on repayment ability, but rather whether the business was operational on February 15, 2020, and had employees for whom it paid salaries and payroll taxes, or a paid independent contractor.

Timeline

The SBA is required to issue implementing regulations within 15 days, and the U.S. Department of Treasury will be approving new lenders.