Businesses actively awaiting guidance from the Small Business Administration (SBA) regarding the process for application to the Coronavirus Aid, Relief, and Economic Security (CARES) Act Paycheck Protection Program were given some guidance yesterday evening. The SBA released a Sample Application for the Paycheck Protection Program. At this time, businesses should review the sample application and begin assembling necessary documents in anticipation of release of the final applications.

Paycheck Protection Program SBA Application

In addition, the form directs businesses to submit the application to their SBA approved lender. This is a slight departure from previous guidance, where we anticipated that businesses could apply directly on the SBA website. In light of the backlog on the SBA website, directing applications to lenders should help expedite the process. Because the form must be submitted to the SBA approved lenders, the lenders may have additional requirements for documentation beyond what is contained in the sample application.

Instructions to the Sample Application also contain some guidance on calculating average monthly payroll, which is the basis for determining the amount of the loan. Loan amounts will generally be 2.5x the average monthly payroll. For purposes of calculating payroll, Section 1102 contains certain exclusions, such as payroll to individuals residing outside of the United States, compensation in excess of $100,000 as prorated for the covered period, certain payroll taxes, and certain family and sick leave payments.

CARES Act COVID-19 Loan Forgiveness

In certain cases, the loans disbursed under the Paycheck Protection Program can be forgiven. Please see “Inside the CARES Act: COVID-19 Loan Forgiveness Relief—a Section 1106 Primer” for additional details. Once the Paycheck Protection Loans are disbursed during the covered period (through June 30, 2020), businesses can use the loans to pay for certain approved expenses, such as rent, payroll, utilities, and interest on other loans. At the end of the eight-week period following loan origination (defined in Section 1106 of the CARES Act as a separate “covered period”), businesses can apply to their lender for loan forgiveness. Layoffs and pay cuts will negatively impact the amount of the loan forgiven.