The Paycheck Protection Program (the PPP) is part of the CARES Act recently passed and signed into law as part of the federal stimulus package. The PPP provides for forgivable loans to small businesses (companies with less than 500 employees at any given location). This program is an additional program to the SBA low-interest loan program announced earlier.
The Paycheck Protection Program contains detailed administrative parameters for implementation, oversight, administration. The provisions of most interest to business owners and individuals are:
Who is eligible to get these loans?
- Businesses, companies, 501(c)(3) nonprofits, 501(c)(19) veteran’s organizations, or Tribal business concerns with less than 500 employees;
- sole-proprietors, independent contractors, and other self-employed individuals; and,
- Larger employers (with multiple locations) with less than 500 employees per location in certain industries who fall below a certain gross receipts threshold.
- Recipients must demonstrate that they were operational on February 15, 2020 and had employees for whom it paid salaries and payroll taxes, or paid independent contractors.
- Recipients must make a good faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19; that it will use the funds to retain workers and maintain payroll, lease, and utility payments; and, are not receiving duplicative funds for the same uses from another SBA program.
- Also, the business does not have a SBA (7)(a) loan pending for the same purpose and duplicative of amounts applied for or received under a covered loan.
- Loans max out at $10 million or 2.5 times the average monthly payroll based on the prior year’s payroll whichever is less.
- Proceeds can be used for payroll support, such as employee salaries/wages, paid sick or medical leave, insurance premiums, and mortgage, rent and utility payments.
- Forgiveness driven by retention of employee headcount as of February 15, 2020. Forgiveness will be reduced by reduction in headcount or overall payroll during the loan period. In other words, if a company reduces its headcount or payroll then the amount of the loan eligible for forgiveness is accordingly reduced.
- To encourage companies to rehire workers, there is no penalty for recipients who add back headcount lost between February 15, 2020 and the inception of the loan.
- Loan period is February 15, 2020 through June 30, 2020.
- Loans will be available through certain approved community banks.
- Maximum interest rate of 4%
- No pre-payment fees/penalties.
- No collateral or personal guarantee is required.
- Portions of the loan not forgiven have a maturity period of not more than 10 years.
- Payments on the loan may be deferred 6 months to 1 year.
As with most things the devil is in the details. The Secretary is expected to issue rules and regulations in 2 to 3 weeks to address the details and definitions of implementation, oversight, and administration.
You should contact your banker to see if your bank will participate in this program and if so to get the process started.