On Friday, March 27, 2020, the President signed into law the unanimously passed Coronavirus Aid, Relief and Economic Security (CARES) Act, which allocated billions of dollars in relief for American workers, nonprofits and small businesses. The section of the Act called the Paycheck Protection Program (PPP) provided emergency relief for small businesses affected by the COVID-19 crisis. The PPP allocated funding to help small businesses keep workers employed amid the pandemic and economic downturn. All businesses with 500 or fewer employees can apply, including nonprofit organizations, veterans’ organizations, tribal business concerns, sole proprietorships, self-employed individuals and independent contractors. The initial allocation of $349 billion was depleted a few weeks after
the program opened. However, Congress recently replenished the fund with an additional $310 billion. As of April 27, 2020, the Small Business Association (SBA) is again accepting applications for the program.
The PPP initiative provides 100% federally guaranteed loans to small businesses and provides a direct incentive for small businesses to keep their workers on the payroll. The loans can be used for operational costs, including: payroll expenses, health benefits, paid, sick, medical/family leave and insurance premiums, mortgage interest, rent payments and interest on debt incurred before the covered period. The program is available through June 30, 2020. The program operates on a first come, first serve basis so businesses are encouraged
to apply quickly before funds run out.
There is no personal guarantee requirement for the loan, meaning the business owner is not required to personally guarantee repayment of the loan. However, in order to be eligible for the loan, the small business must provide a good faith certification of current economic harm to the business. The business certification includes, but is not limited, a good faith statement that: 1) the current economic uncertainty makes the loan necessary to support your ongoing operations; 2) the funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments; and 3) the business has not and will not receive another loan under this program.
The loan amount available to each small business is 250% (2.5 times) the average monthly payroll costs over one year. Payroll costs includes salary, paid leave, severance, group health benefits, retirement, state and local taxes. The amount is up to $100,000 per employee for these expenses. The amount is subject to a $10 million cap. The funds can be used for payroll expenses operational expenses, including mortgage interest, rent payments and utilities.
The program is unprecedented in that some of the loan may be forgiven, which effectively turns the loan into a grant for the small business. The amount of the loan
forgiveness is unique to each small business and will depend on the number of employees the business retains or hires back by June 30, 2020. The loan can be forgiven as long as the loan proceeds are used to cover intended costs and employee compensation levels are maintained. June 30 relates to loan forgiveness so even if the business does not have work for employees, the loan is still a very advantageous loan because of the interest rate and terms.
The interest rate on the loan is 1% and all payments are deferred for six months. There are no prepayment penalties or fees. The loan is only available one time so businesses should think carefully about their business needs in applying for the loan. Even if the
business is receiving state assistance, it will not preclude the business from assistance under this federal program.
Because the additional $310 billion will likely be depleted within weeks, small businesses must act quickly in order to participate in the program. Small businesses can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Small businesses should reach out to their current bank and ask if the bank is an SBA-approved lender. Many bank websites have information posted regarding the PPP. The SBA website also provides a list of lenders if your current lender is not participating in the