SBA Paycheck Protection Program Guidance

On March 31, 2020, the Small Business Administration (“SBA”) released an Information Sheet containing guidance for borrowers with respect to the Paycheck Protection Program (“PPP”) created by the CARES Act. The Paycheck Protection Program authorizes up to $349 billion in forgivable loans to eligible small businesses, sole proprietors, independent contractors, self-employed individuals, nonprofits and certain other organizations that were operational and paying employees on February 15, 2020 to assist such businesses with certain operational costs during the coronavirus (“COVID-19”) pandemic. 

Application Process:

·      Beginning on April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their qualifying expenses. 

·      Beginning on April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their qualifying expenses. 

PPP applications will be accepted through any existing SBA lender or through federally insured deposit institutions, federally insured credit unions, and Farm Credit System institutions. In order to apply, applicants will need to submit a PPP loan application along with certain required documentation to an approved lender prior to June 30[i]. A link to a sample application is included at the end of this alert. In addition to a PPP application, applicants will need to submit certain payroll information and tax documents, which documentation will be utilized by the lender to calculate the eligible loan amount. 

Eligible Uses of Loan Proceeds:

·      Payroll costs

·      Interest on mortgage obligations incurred before February 15, 2020;

·      Rent under lease agreements in force before February 15, 2020; and

·      Utilities for which services began before February 15, 2020

Loan Terms:

·      Generally up to 2 months of average monthly payroll costs from last year + 25% of that amount, subject to a $10 million cap (payroll costs will be capped at $100,000 annualized for each employee)

·      Interest rate: 0.5%

·      All payments are deferred for 6 months, during which period interest will accrue 

·      Loan maturity: 2 years

·      There are no prepayment penalties, collateral or guarantee requirements

Loan Forgiveness

Borrowers will owe money when the loan is due if loan proceeds are used for anything other than payroll costs, mortgage interest, rent, and utility payments over the 8 weeks after getting the loan. Perhaps most notably, the guidance provides that it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs due to the likely high subscription to the program. This means that proceeds used for mortgage interest, rent and utilities over and above 25% of the loan amount will likely not be forgiven.  As a reminder, payroll costs, which were discussed in our previous client alert, include the following:

·      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 provisions 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.

Borrowers will also owe money for failure to maintain staff and payroll. Specifically:

·      Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.

·      Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019. 

·      Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.    

In order to receive forgiveness, a borrower can submit a request to the lender servicing the loan, along with the following:

·      Documents that verify the number of full-time equivalent employees and pay rates’

·      Documents that verify payments on eligible mortgage, lease, and utility obligations;

·      Certification 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 must make a decision on the forgiveness within 60 days. 

For any questions about, or to discuss, the Paycheck Protection Program, contact the following Riley Riper Hollin & Colagreco attorneys: Edward J. Hollin, Robert A. Cohen, Jonathan A. Jordan, or Jeff Cronin. 

Sample application: https://www.sba.gov/sites/default/files/2020-03/Borrower%20Paycheck%20Protection%20Program%20Application_0.pdf

SBA Information Sheet: https://home.treasury.gov/system/files/136/PPP%20Borrower%20Information%20Fact%20Sheet.pdf

A review of economic relief available to small businesses under the CARES Act can be found by clicking the following link: https://www.rrhc.com/2020/03/30/cares-act-and-cwca-economic-relief-available-to-pennsylvania-small-businesses-in-response-to-covid-19/ [i] Applicants are encouraged to apply as quickly as possible to account for a funding cap and lender processing times.

© 2020. This publication is intended for general informational purposes only and does not, nor is it intended to, provide the reader with legal advice of any kind. This publication does not, nor is it intended to, create any attorney-client relationship. Readers should consult with their own attorney to discuss the legal implications of any content in this publication to their particular situation.