The following information is from Goldman Sachs:
For small businesses, the cornerstone of the Coronavirus Aid, Relief, and Economic Security (CARES) Act is the $349 billion Paycheck Protection Program, an emergency lending facility to provide cash-flow assistance to businesses negatively impacted by the COVID-19 pandemic.
Note: Paycheck Protection Program loans are not yet available. Per guidance from Treasury on March 31, 2020, eligible lenders can begin processing loans on April 3, 2020 for small businesses and sole proprietors and on April 10, 2020 for self-employed individuals and independent contractors.
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
- Please note, PPP Loans are available on a first come, first served basis
Who is Eligible?
For-profit businesses, not-for-profit organizations, veterans organizations, and Tribal business concerns that meet the following 3 criteria:
- Are either
a) Entities with fewer than 500 employees or small entities as defined by the SBA; certain industries may have higher maximum employee levels OR
b) 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:
- At least 75% of the loan size on 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
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)
- At least 75% of the forgiveness amount must be for payroll costs
- 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: 1% annually
- Loan term: 2 years
- No fees for borrowers
- All borrowers will receive at least 6 months of interest and principal payment deferment
- SBA PPP Loans:
- DO NOT require companies to have been in operation for one year
- DO NOT require a personal guarantee or collateral
- DO NOT explicitly require companies to be profitable
What is the Timing?
- Treasury has advised that lenders may begin processing loans for small businesses and sole proprietorships beginning April 3, 2020 and for self-employed individuals and independent contractors on April 10, 2020
- Eligible lenders must participate within this timeframe
- Loans can be made until June 30, 2020
- See sample borrower application and borrower factsheet, both released by Treasury on March 31, 2020
Which Lenders Can Make SBA PPP Loans?
- Eligible lenders currently include existing SBA 7(a) program lenders, federally insured depository institutions, federally insured credit unions, and Farm Credit System institutions
- All institutions that are eligible may choose to not participate
- Additional lenders with sufficient qualifications are expected to be added on a rolling basis by SBA and the US Department of the Treasury