What is it?
The Paycheck Protection Program is part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This is a nearly $350-billion program intended to provide American small businesses with eight weeks of cash-flow assistance through 100 percent federally guaranteed loans. You can read the program in its entirety here.
Here’s the form if you want to start preparing your application:
All businesses — including nonprofits, veterans organizations, Tribal Business concerns, sole proprietorships, self-employed individuals and independent contractors with 500 or fewer employees that were in operation on Feb. 15, 2020 can apply.
The maximum loan amount is the lower of 2.5x the Average Monthly Payroll Costs for the 12 months preceding the loan (note a different timeframe is used for seasonal employees) or $10,000,000.
The PPP program runs from February 15, 2020 to June 30, 2020 (“covered period”).
- The lender will calculate the eligible loan amount using the tax documents submitted
- Loans carry a 1% fixed rate.
- Loans have a two-year term and no prepayment penalty.
- No collateral is required.
- No personal guarantee is required.
- Loan amounts will be forgiven as long as:
- The loan proceeds are used to cover payroll costs, and most mortgage interest, rent and utility costs over the eight-week period after the loan is made*; and
- Employee and compensation levels are maintained.
- Payroll costs are capped at $100,000 on an annualized basis for each employee.
- Loan payments will be deferred for six months.
- The SBA’s affiliation standards are waived for small businesses that:
- are in the hotel and food services industries which fall under NAICS code 72;
- are franchises in the SBA’s Franchise Directory; or
- receive financial assistance from small business investment companies licensed by the SBA.
- Lenders may not collect any fees from the applicants.
When calculating your average monthly Payroll Costs you’ll want to include the following expenses:
- Salary, wages, commissions or tips (capped at $100,000 on an annualized basis for each employee);
- Employee benefits including costs for vacation, parental, family, medical or sick leave; allowance for separation or dismissal; payments required for the provision of group health care benefits including insurance premiums; and payment of any retirement benefit;
- State and local taxes assessed on compensation; and
- For a sole proprietor or independent contractor: wages, commissions, income or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.
Once you receive the loan, you’ll have an 8-week window to incur costs that are forgivable. The following costs are eligible for loan forgiveness:
- Payroll costs
- Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
- Employee salaries, commissions, or similar compensations
- Payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation)
- Rent (including rent under a lease agreement established prior to February 15, 2020)
- Utilities (in place prior to February 15, 2020)
- Interest on any other debt obligations that were incurred before the covered period
*Importantly the guidance notes that, due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. The PPP program is open until June 30, 2020, so businesses are encouraged to apply as quickly as possible as there is a funding cap and lenders will need time to process the loans
Reduction of Loan Forgiveness
Loan forgiveness will be reduced if:
- Full-time employee headcount is decreased
- Salaries and wages are decreased by more than 25% for any employee who made less than $100,000 annualized in 2019.
Re-Hiring — Borrowers have until June 30, 2020 to restore full-time employment and salary levels for any changes made between Feb. 15, 2020 and April 26, 2020.
There are a bunch of lenders out there offering the Paycheck Protection Program. Find one near you:
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