Paycheck Protection Program Loan

In response to the ongoing Coronavirus crisis, the legislature passed the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. One of the relief programs created under CARES is the Paycheck Protection Program (“PPP”). Loans under the PPP program could become available through an online application as early as April 3, 2020. The PPP loan program is detailed below.  Please be advised PPP is a brand-new program and will undoubtedly be subject to additional rules and regulations. Businesses that seek or receive PPP relief should stay apprised of any such additional rules and regulations.

i.            Does my business Qualify?
In order to qualify for a PPP loan, a business must have been in operation on February 15, 2020 and:

• • • • • either (i) qualify as a “small business concern” under existing SBA rules and regulations, or (ii) be a business concern or nonprofit organization with fewer than 500 employees (subject to exceptions detailed below), which number includes employees of all affiliates; and
        • either (i) have employees to whom it has paid wages and on behalf of whom it has paid payroll taxes or (ii) have paid independent contractors; and
        • certify that the loan is necessary to support ongoing operations and that it will use funds for a permitted loan use. 

    Notably, having more than 500 employees does not automatically disqualify a business from PPP loan eligibility. The SBA will review such businesses industry, revenue, and number of employees.  Please find the SBA’s “Size Standards Table” here.

ii.          What can a PPP Loan do for me?
Before applying for a PPP Loan, businesses should review the potential benefits as well as the restrictions placed upon the use of the funds provided pursuant to the program.

• • • • Benefit Totals
        A PPP Loan can provide a business with the lesser of $10,000,000 or 2.5X the average monthly “payroll cost”.
      • “Payroll Costs” Explained
        A PPP Loan can be used to cover “payroll costs”.  Under CARES, “payroll costs” are a defined term. “Payroll costs” include (but are not limited to):
        • salary, wage, commission, or other similar compensation
        • payments of cash tips
        • payments for vacation, parental family, medical, or sick leave
        • allowance for dismissal / separation
        • healthcare benefits (including insurance premiums)
        • retirement benefits
        • payroll taxes
      •  Permissible Uses Not Covered under “Payroll Costs” Umbrella

• • • • • 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)
        • Utilities

iii.        Permissible Uses Not Covered under “Payroll Costs” Umbrella
Businesses should carefully review the terms associated with a PPP before applying.

• • • • Impermissible Uses
        PPP Loans restrictions include (but are not limited to):
        • compensation of an individual employee to the extent in excess of $100,000 per year
        • compensation paid to employees with primary residence outside the U.S.
        • any use that would be properly served with an SBA 7(a) loan. Those uses include (but are not limited to):
        • financing working capital, refinancing existing debt, and/or for financing the purchase of furniture, fixtures, machinery, equipment, land/buildings, or a business.
      • Maximum Interest
        The maximum available interest rate will be 4%.
      • Loan Forgiveness
        PPP Loans can be eligible for forgiveness, if the loan proceeds are used for:
        
        • “payroll costs” (except for the exclusions described, in part, above)
        • mortgage interest
        • rent payments
        • utility payments
      • Repayment Term
        As an initial matter, any payments on principal, interest, and fees will be automatically deferred to 6 to 12 months. Any portion of a loan not forgiven will have a 10-year term for repayment.
      • Personal Guarantee & Collateral
        A PPP loan requires no personal guaranty and will be unsecured.
      • Workforce Reductions and Salary/Wage Reductions
        Businesses must be aware that the amount of the PPP loan subject to forgiveness will be reduced if the business:
        • reduces the number of full-time equivalent employees, or
        • reduces the wages/salary of certain employees below a certain threshold.

Employers seeking forgiveness on their loans should refrain from engaging in either of the above actions during the period of February 15, 2020 through June 30, 2020.

To incentivize the rehiring of employees that may have been dismissed at the outset of the Coronavirus crisis, the PPP provides a period (from February 15, 2020 to 30 days after enactment of CARES) during which employers can “cure” their downsizing efforts and may once again become eligible for forgiveness.

Please be advised that the SBA has not yet published the application form for PPP loans. Those forms are expected this Friday, April 3, 2020. Please be further advised that additional guidance on the acquisition, use, and repayment of PPP loans will be provided by the SBA in the coming weeks.  Please review this link for further updates.