The Paycheck Protection Program (PPP) provides loans of up to $10 million to qualified small businesses. This program provides cash-flow assistance through 100 percent federally guaranteed loans to employers who maintain their payroll during this COVID-19 emergency.
DOES MY BUSINESS QUALIFY? If your business was in operation on February 15, 2020 and has 500 or fewer employees or independent contractors for whom the business had paid salaries, compensation and payroll taxes, you qualify. (There are limited exceptions to the 500-employee threshold, such as businesses in the hospitality and food sectors that have multiple locations, which can have up to 500 employees per physical location of the business.)
BUSINESSES MUST PROVIDE GOOD FAITH CERTIFICATION: In addition to the aforementioned qualification criteria, in order to participate in the PPP a business is required to certify the following:
- That the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient;
- Acknowledging that funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments;
- That the business does not have an SBA 7(a) loan pending for the same purpose and duplicative of amounts applied for or received under a covered loan (i.e. the Economic Injury Disaster Loan);
- During the period beginning on February 15, 2020 and ending on December 31, 2020, the business has not received amounts under the Paycheck Protection Program for the same purpose or duplicative amounts applied for or received under a covered loan.
IT LOOKS LIKE MOST U.S. SMALL BUSINESSES ARE ELIGIBLE? It certainly appears that way. This definitely looks like a very good deal for U.S. small businesses.
PPP LOAN PROVISIONS (IT GETS EVEN BETTER)
The PPP loan provisions make this program look even more attractive:
- No collateral required
- No personal guarantee required
- No loan fees
- If you spend the money as you are supposed to and keep your employees on payroll, some or all of the loan is forgiven (See following section)
- The forgiven portion of the loan is NOT considered taxable
- For the portion of the loan that is not forgiven, repayment terms are up to 10 years at not more than 4% interest
- Initial loan payments are deferred for a period of six months to one year
- No prepayment penalty
WHAT EXPENSES CAN I USE THE LOAN TO PAY FOR? In addition to payroll, the following expenses can also be paid using a PPP loan:
- Costs related to the continuation of group health care benefits during periods of paid sick, medical or family leave, and insurance premiums;
- Payments of interest on any mortgage obligation;
- Interest on any other debt obligations that were incurred before the covered period.
HOW MUCH CAN I BORROW? Here’s how the loan will generally work – each eligible business may receive up to 2.5 times its average monthly payroll costs subject to a $10 million limitation. The SBA will be issuing more guidance on how to apply for a PPP loan and calculate the maximum loan amount your business will be eligible for. We have also prepared a free template that you can use to help calculate this.
MY BUSINESS HAS ENOUGH CASH TO GET US THROUGH THE NEXT FEW MONTHS. SHOULD I STILL APPLY? Nobody knows when life – and the worldwide economy – will be back to normal. Even if your business is in the fortunate position of weathering this storm for now, that could change in a hurry. The PPP program is a pretty sweet deal for all U.S. small businesses. If you qualify to apply, you should strongly consider doing so. However, if your business is thriving because of COVID-19 you should probably leave this program for those who need it most.
HOW TO APPLY: While the SBA will be administering and guaranteeing these loans, you will apply through your bank or credit union.
WHAT TO DO NOW: Talk to your bank or credit union as soon as possible and ask for a checklist of required documentation that will be required for the initial loan application (and subsequent loan forgiveness application – see next section). We’ve also included this in our free template.
Although your bank or credit union is likely still waiting for more information from the SBA on how to process PPP applications, they will probably be inundated with loan applications very soon so its best to be as prepared as possible ahead of time.
NOTE: A loan under the PPP makes the borrower ineligible for the Employee Retention Tax Credit made available under the CARES Act (see later section in this article). This only applies to the Employee Retention Tax Credit in the CARES Act and does not apply to any credits available under the Families First Coronavirus Response Act (such as the paid sick leave tax credit) or other credits available under the CARES Act.
MAJOR NOTE: The SBA has up to 30 days following the enactment of the CARES Act to issue regulations implementing and providing guidance under certain provisions of the CARES Act. In addition, the Treasury Department is required to issue regulations implementing and providing guidance under certain provisions of the CARES Act. Issuance of regulations and guidance may delay loan approval and disbursement or modify/waive certain loan requirements.