Paycheck Protection Program Pointers for Small Businesses

On March 27, 2020, President Trump signed the CARES Act into law as part of a $2 trillion stimulus package designed to stabilize the U.S. economy as a result of COVID-19. The CARES Act makes available $349 billion for small businesses in the form of forgivable business loans through the Paycheck Protection Program (“PPP”). Loans through the PPP will be forgiven as long as they are used for payroll costs, mortgage interest, rent and utilities during the eight-week period after the loan is made.

Key Dates

There has been exceptionally high demand for the PPP program. Applications were made available for small businesses beginning on April 3; applications were available for sole proprietorships, independent contractors and self-employed individuals starting April 10. Applications should be submitted by June 30 through an approved SBA lender (see sba.gov for a list), federally insured depository institution, federally insured credit union, or farm institution. Keep in mind that some banks have yet to make their portals operational.

Who and What Qualifies

The loans are available to all businesses, including sole proprietorships, self-employed individuals, nonprofits, veterans’ organizations, and tribal organizations of 500 or fewer employees. SBA affiliation standards are waived for certain franchises, small businesses in the hotel and food services industries, and certain other businesses. Loans can be as large as two months average payroll costs, (capped at $100,000 annualized per employee), and no collateral or personal guarantees are required.

Payroll costs for purposes of the loans include salary, wages, benefits like paid vacation and sick leave, required health insurance and retirement benefit payments, and state and local payroll assessments.  However, payroll costs for the purposes of PPP do not include qualified sick and family leave payments for which a tax credit is provided under sections 7001 and 7003 of the Families First Coronavirus Response Act (FFCRA).

Loan Forgiveness

In order to be forgiven, loans must be used for payroll costs as defined above or for mortgage interest, rent and utilities. Loan proceeds not forgiven will accrue interest at a fixed annual rate of 1.0% and must be paid back within two years. The lender will have 60 days to approve or deny the forgiveness request, based on the information provided.

Program for Larger Companies

The response for these programs has been so overwhelming that the segment of the market with an employee base of more than 500 employees, which was originally shut out of the PPP program, petitioned the Treasury for access to similar opportunities and funds. As such, a new program called the “Main Street Loan Facilities: Liquidity for Mid-Market Companies” was created on April 10, 2020. Learn more about this program here.

For both of the aforementioned programs, it is imperative to properly plan and maintain detailed, accurate records throughout the process—from application through loan funding. Note: Funds are limited, and time is of the essence. Following the proper procedures is key to successfully leveraging all of the stimulus benefits for which you may be eligible.