Paycheck Protection Program Guidance Issued

Paycheck Protection Program Application Process Opens Friday

The Small Business Administration released some guidance for the nearly $350 billion Paycheck Protection Program* — or PPP. The program aims to assist small and mid-sized businesses deal with the financial fallout of the COVID-19 health crisis.

PPP offers funds to cover up to eight weeks of payroll costs, including benefits. Businesses can also use the loans to pay for rent, utilities, and interest on mortgages.

The application process for small businesses — as well as nonprofits and sole proprietorships — starts Friday, April 3, 2020. Borrowers can apply for loans through approved SBA lenders. Beginning April 10, independent contractors and those who are self-employed can also file for loans.

The government will forgive loan amounts as long as:

• The business uses the loan proceeds to cover payroll costs and most mortgage interest, rent, and utility costs during the eight-week period after the loan is made; and
• The business maintains employee and compensation levels.

However, the guidance states, "due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll."

The PPP will be available through June 30, 2020. But the government is already expecting demand to be high, so if your business needs funding, make sure to apply right away.

Who Can Apply

This program is for any small business with fewer than 500 employees (including sole proprietorships, independent contractors, and those who are self-employed), private nonprofit organizations, or 501(c)(19) veterans organizations affected by COVID-19.

Businesses in some industries with more than 500 employees can apply if they meet the SBA's size standards.

Small businesses in the hospitality and food industry with more than one location could also be eligible at the store and location level if the store employs fewer than 500 workers. So, each store location could be eligible.

Application Process*

Business owners will need to complete the PPP application and submit the application — including the required documentation — to an approved lender. They can also have an authorized representative or agent help them prepare the application.

Businesses can apply through any existing SBA 7(a) lender or any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be able to make these loans available after the government approves them and the lenders enroll in the program.

If you're a business owner, check with the financial institution you already work with to see if they're taking part in the program. You can also see a list of SBA lenders here.

We have also put together a loan preparation checklist with some financial documents you'll need to have on hand to complete the application.

Loan Details

Loans can be for as much as two months of your average monthly payroll costs from last year, plus an additional 25%. That amount is subject to a $10 million cap. If your business is seasonal or new, you'll use different time periods for your calculation.

Other details include:

• Payroll costs are capped at $100,000 annualized for each employee.
• Loan payments will also be deferred for six months.
• No collateral or personal guarantees are required.
• There are no fees.

As part of the application, businesses will need to certify that:

• Current economic uncertainty makes the loan necessary to support ongoing operations.
• Funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.
• The borrower has not and will not receive another loan under this program.
• The borrower will provide documentation that verifies the number of full-time and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for eight weeks after getting this loan.

For more detailed information about the PPP loan, you can download our SBA loan comparison chart below.

Loan Forgiveness

Forgiveness is based on employers maintaining or rehiring employees by June 30, 2020, and maintaining salary levels. Borrowers have two years to repay the portion of the loan that's not forgiven at an interest rate of 0.5%.

To apply for loan forgiveness, business borrowers can submit a request to the lender. The request must include documents that verify the number of full-time employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations.

Borrowers must certify that the documents are true and that the forgiveness amount was used to keep employees and make eligible mortgage interest, rent, and utility payments.

The lender has 60 days to make a decision about forgiveness.

Loan forgiveness will be reduced if:

• A business reduces its full-time employee headcount
• A business reduces salaries and wages by more than 25% for any employee who made less than $100,000 in 2019.

At Casey Peterson, LTD, we understand this is a time of uncertainty and fear for many small business owners. As always, if you run into a situation not covered here, or need help with the application processes, please let us know. We're always available to work with you to find solutions to your most trying concerns.

*As of 4/27/2020, applications for the Paycheck Protection Program have been reopened with the additional funding passed by Congress through the Paycheck Protection Program and Healthcare Enhancement Act on 4/24/2020. On 5/4/20, the SBA reopened the EIDL application process for agricultural small businesses only on a limited basis. Other new applications for the Economic Injury Disaster Loans are not currently being accepted yet, per the SBA, as they process the loans already in the queue on a first come, first-served basis.

This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.