Overview

Of the many relief programs that the U.S Congress has created to provide business and personal financial relief in response to the unprecedented disruption caused by the COVID-19 pandemic, the Paycheck Protection Program (PPP) enacted in the Coronavirus Aid, Relief, and Economic Security Act is perhaps the most eagerly anticipated by small businesses looking to avoid layoffs. 

This program provides small businesses with cash assistance in the form of forgivable loans of up to $10 million to pay their employees and rehire those already laid off during the COVID-19 crisis, as well as to pay certain operation costs. The PPP is an incentive for businesses to keep their workers on payroll or recall employees they have furloughed or laid off since February 15, 2020. These PPP loans, which cover the period beginning February 15, 2020 and ending June 30, 2020, can be either partially or totally forgiven. Applicants must certify that the current economic uncertainty makes the loan necessary to support ongoing operations.

Guidance and Application

The Department of the Treasury released a sample PPP application form and initial guidance for borrowers, and announced that lenders will begin accepting applications on April 3, 2020.

• Paycheck Protection Program (PPP) Information Sheet: Borrowers

• Sample Paycheck Protection Program Application Form to Start Preparing Your Application

Eligibility

All businesses with 500 or fewer employees are eligible to apply for PPP loans, including eligible nonprofits, veterans' organizations, tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors. Certain businesses with more than 500 employees are also eligible to apply if they meet Small Business Administration (SBA) size standards determined for each industry. In addition, SBA’s affiliation rules are waived for certain small businesses including those in the hospitality and food services industry and franchises with an SBA franchise identifier code. 

Loan Terms

• PPP loans can be for 2.5 times the average monthly payroll costs from the last year, up to a $10 million cap.

• Interest rate of the loan will be 0.50% fixed rate. 

• Payments are deferred for six months but interest will accrue over that period. 

• The loan, if not forgiven, is due in two years. 

• There are no prepayment penalties or fees. 

Authorized Uses of Loan

• Payroll support, including paid sick, medical, or family leave, and costs related to the continuation of group health care benefits during those periods of leave. (Note: PPP loans cannot be used to fund paid leave required under FFCRA).  

• Employee salaries (capped at $100,000 on an annualized basis for each employee).

• Most mortgage interest obligations incurred before February 15, 2020.

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

• Utilities, for which service began before February 15, 2020.

Due to high demand, the SBA anticipates that not more than 25% of a forgiven loan amount may be for non-payroll costs. 

Application Dates

• Starting April 3, 2020 and before June 30, 2020 (or until the funding cap is met), small businesses and sole proprietorships can apply for and receive these loans.

• Starting April 10, 2020 and before June 30, 2020 (or until the funding cap is met), independent contractors and self-employed individuals can apply for and receive these loans.

Payment Deferral

All payments are deferred for a minimum of six months and a maximum of 12 months. Any amount not forgiven is payable on a two-year term at a 0.5% interest rate. No personal guaranty or pledge of collateral is required.

Loan Forgiveness

After an eight-week “covered period,” all or a portion of the loan may be forgiven if the business has maintained its staff and payroll. 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

The PPP is open until June 30, 2020, subject to a funding cap of $349 billion. Please see the documents from the Department of the Treasury for more details (links to those document are above).

• Contact your bank to see if it is an SBA-approved lender. If it is not an approved lender, you can contact the SBA to find one here. 

• Produce payroll records for the past 12-month period. In order to receive loan forgiveness, you will need to submit this documentation to your lender within 60 days from the date the loan is funded.

• Review the official guidance provided by SBA for further information related to this program.

Other Relief

Small businesses may consider other options for financial support, including SBA Economic Injury Disaster Loans (EIDLs). We will soon circulate a more comprehensive guidance document for this and other federal relief programs for businesses.