Launched by the Treasury Department and the Small Business Administration (SBA) under the CARES Act, the Paycheck Protection Program (PPP) has allocated $349 billion toward job retention and expenses for American workers employed by small businesses as well as eligible nonprofit organizations, Veterans organizations, Tribal businesses identified in the Small Businesses Act, self-employed workers and independent contractors.  

The PPP is structured as follows:

Eligibility

Small businesses with 500 employees or fewer, as well as businesses with over 500 employees in certain industries, are eligible to receive loans under this program. SBA’s affiliation standards are waived for small businesses in the hotel and food services industries, franchises in the SBA’s Franchise Directory, or for recipients of financial assistance from small business investment companies licensed by the SBA.

PPP vs. FFCRA

The test for 500 employees for purposes of the PPP is different than that for purposes of being a covered employer under the Families First Coronavirus Response Act (FFCRA). Under FFCRA, employers must follow the integrated employer test under the FMLA and only US-based employees are considered.  Under the PPA employers count all employees regardless of location (including outside the U.S.) if they have common ownership. Specifically, SBA counts all individuals employed on a full-time, part-time, or other basis. This includes employees obtained from a temporary employee agency, professional employer organization or leasing concern. SBA will consider the totality of the circumstances, including criteria used by the IRS for Federal income tax purposes, in determining whether individuals are employees of a concern. Volunteers (i.e., individuals who receive no compensation, including no in-kind compensation, for work performed) are not considered employees.

Use of funds

The program provides small businesses with the funds to cover payroll costs and benefits as well as costs and interest related to mortgages, rent, and utilities incurred after February 15, 2020 and before June 30, 2020. Funds may also be used for costs associated with conversion or expansion, including acquisition of land, material, supplies, equipment and working capital.

Eligible payroll costs

Eligible payroll costs include:

• Sum of payments of any compensation with respect to employees that is:

  • Salary, wage, commission, or other similar compensation (not in excess of $100,000, prorated, or with respect to any employee whose principal place of residence is outside of the U.S.)

  • Cash tips or equivalent (not with respect to any employee whose principal place of residence is outside of the U.S.)

  • Payment for vacation, parental, family, medical, or sick leave (other than qualified sick leave wages or qualified family leave wages)

  • Allowance for dismissal or separation

  • Payment of group health care benefits and insurance premiums (generally, medical, dental, vision and health flexible spending account benefits)

  • Payment of retirement benefits

  • Payment of State or Local tax assessed on employee compensation 

• Sum of payments of any compensation or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment or similar compensation (not in excess of more than $100,000 in 1 year, prorated)

Disbursement amounts

Loans are disbursed at a .5% fixed rate and limited to no more than 2.5 times the average monthly payroll costs from the previous year, capped at $10 million. Seasonal or new businesses will use a different set of calculations.

Loan forgiveness

PPP loans may be fully forgiven when used for eligible payroll costs and other approved expenses under the program, provided that 75% of the forgiven amount must be used for payroll, and employers must maintain or rehire employees and restore salary levels by June 30, 2020 for any changes made between February 15, 2020 and April 26, 2020. Loan forgiveness is reduced in accordance with a decline of full-time employees, salaries, or wages.  Only those payroll costs, and other expenses identified in the program, incurred during the eight-week period following origination can be used to offset the loan amount (can be used to identify the amount for forgiveness).

Loan repayment

Loan payments can be deferred for six months, no fees or interest will be charged, during the deferral, and no collateral or personal guarantees are required. Any outstanding loan payments are due within two years, and there is no prepayment penalties or fees.

Information for Lenders

All loans are guaranteed by the SBA, and the SBA waives all guarantee fees. Lenders must verify (i) the borrower was in operation on February 15, 2020, (ii) the borrower had employees and paid those employees’ salaries and payroll taxes, and (iii) the dollar amount of the average monthly payroll costs. Lender processing fees will be based on the balance of the outstanding loan at the time of the final disbursement, and agent fees will be paid out of the lender’s fees. Lenders are also permitted to sell PPP loans on the secondary market. Other regulated lenders are eligible to make these loans once approved and enrolled in the program. 

Application timeline

Small businesses and sole proprietorships can begin applying April 3, 2020, and independent contractors and self-employed individuals can begin applying April 10, 2020. 

Application process

Applications are available (here) and must be submitted with all required documentation by June 30, 2020. Loans are offered through any existing SBA 7(a) lender or through any participating federally insured depositary institution, federally insured credit union, or Farm Credit System institution. 

Waiver of the SBA “Credit Elsewhere” requirement

Prospective borrowers are not required to attempt to obtain loans elsewhere before applying for PPP funds.

Borrower certification requirements

As part of the application process, borrowers must certify to the following:

• Current economic uncertainty makes the loan necessary to support ongoing operations.

• The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.

• Borrower has not and will not receive another loan under this program.

• Borrower will provide the lender with documentation verifying the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after receiving the loan.

• Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.

• All information provided in the application process is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law.

Because funding will be capped, eligible businesses and individuals are encouraged to apply as soon as possible. For more information about recommended steps, please contact your Foley relationship partner. For additional web-based resources available to assist you in monitoring the spread of the coronavirus on a global basis, you may wish to visit the CDC and the World Health Organization.