What is the Paycheck Protection Program?

• The Paycheck Protection Program will provide small businesses with loans that may be partially or fully forgiven and are 100% federally guaranteed (SBA PPP Loans)

• This program leverages the existing (SBA) 7(a) lending program and current 7(a) lenders, while vastly increasing the available amount, improving loan terms, streamlining borrower requirements, and providing for the expansion of eligible lenders for SBA PPP Loans
   

Who is Eligible?
For-profit businesses, not-for-profit organizations, veterans organizations, and Tribal business concerns that meet the following criteria:

• Entities with fewer than 500 employees or small entities as defined by the SBA; certain industries may have higher maximum employee levels

• Sole proprietors, independent contractors and self-employed individuals

  • Were in operation on February 15, 2020

  • Will certify, among other things, that the uncertainty of current economic conditions makes the loan necessary to support ongoing operations

With the exception of businesses with a NAICS industry code beginning with 72 (primarily hospitality and food service industries), certain franchise businesses, and businesses that have received investment from an SBIC, a business’s employee count will include the employees of its affiliates (as defined by the SBA)

What Size is the Loan?

• The maximum loan size is the lesser of (i) $10 million or (ii) 2.5x average total monthly “payroll costs”

• If the business has already received an SBA Economic Injury Disaster Loan (EIDL) and chooses to refinance that loan with an SBA PPP Loan, the outstanding EIDL loan amount can be added to the loan amount, subject to the $10 million cap

How are “Payroll Costs” Defined and Calculated?

• Payroll costs for businesses include salaries, wages, cash tips, payments for vacation, parental, family, medical, or sick leave, and group health care benefits, as well as certain other employment-related expenses

• Payroll costs for sole proprietors and independent contractors includes wages and net earnings from self-employment

• Compensation for an individual employee, sole proprietor or independent contractor above $100,000 annually (pro-rated for the period) is excluded

• The average payroll will be calculated over (i) the year prior to the loan origination, (ii) for seasonal employers, the period between February 15, 2019 through June 30, 2019 or, at the election of the borrower, March 1, 2019 through June 30, 2019, or (iii) the period between January 1, 2020 and February 29, 2020 for businesses not in operation during the period between February 15, 2019 and June 30, 2019

What Can the SBA PPP Loan Be Used For?

Borrowers will be required to make a good faith certification that the loan proceeds will be used for:

• 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 compensation

• Business related mortgage interest payments (not principal), lease payments, utility payments

• Interest on any other business debt obligations that were incurred prior to February 15, 2020

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How Much of the SBA PPP Loan Can be Forgiven?

• Amounts spent during the 8 week period after loan origination on payroll costs, business mortgage interest, rent, and utilities 

• Forgiveness will be reduced pro-rata for workforce reductions (this does not include employees who are re-hired)

• Forgiveness will be reduced if salaries/wages are reduced by more than 25% (excluding reductions for salary and wage amounts over $100,000)

• Forgiveness cannot exceed the original loan amount

What If I Have Already Reduced My Workforce?

• The Paycheck Protection Program is retroactive to February 15, 2020

• This means employers can use the funds to re-hire employees and still benefit from loan forgiveness

What are Other Key Terms of the Loan?

• Interest rate will not exceed 4.0% annually

• All borrowers will receive at least 6 months of interest and principal payment deferment

• Any remaining loan amount (post forgiveness) will have a loan term of up to 10 years

• SBA PPP Loans:

o    DO NOT require companies to have been in operation for one year

o    DO NOT require a personal guarantee or collateral

o    DO NOT explicitly require companies to be profitable

What is the Timing?

• Loans can be made as soon as the SBA issues implementation guidance; the SBA’s goal is to accomplish this by April 3, 2020 and loans can be made until June 30, 2020

Which Lenders Can Make SBA PPP Loans?

• Eligible lenders currently include those already authorized to issue loans under the existing SBA 7(a) program

• SBA 7(a) loans are typically made by banks, non-bank lenders, and Community Development Financial Institutions (CDFIs)

• Additional lenders with sufficient qualifications are expected to be added on a rolling basis by SBA and the US Department of the Treasury

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For more important details, please contact Dawn at 843.997.3219