The Paycheck Protection Program makes Section 7(a) loans available to businesses employing 500 people or less in the United States. Your business must have been operating since February 15, 2020, and substantially affected by the COVID-19 pandemic.

Businesses with more than 500 employees may also qualify under certain circumstances. These businesses must take the additional step of consulting the SBA size standards, and should refer to SBA guidelines to view additional types of businesses that may qualify.

Under the Paycheck Protection Program, the maximum loan amount is the lesser of $10 million or 2.5 times the borrower’s average total monthly payroll costs incurred during the year prior to the loan date.

Under the CARES Act, the number you use for your business’ average monthly payroll costs in this formula is your payroll cost amount exactly one year prior to the date of your 7(a) loan application. The loan application suggests, however, that applicants generally will base this calculation on 2019 payroll costs.

“Payroll costs” include:

  • salary, wage, commission or similar compensation
  • vacation, parental, family, medical or sick leave
  • allowance for dismissal or separation
  • payments required for group healthcare benefits, including premiums
  • payment of any retirement benefits
  • state or local tax imposed on the compensation of employees

Payroll costs DO NOT include:

  • compensation for any individual employee in excess of $100,000 in one year, as prorated for the period between February 15, 2020 and June 30, 2020
  • any FICA tax or withheld income tax
  • compensation of any individual whose principal residence is outside the United States
  • qualified sick leave and family leave wages for which a credit is allowed under the Families First Coronavirus Response Act

Before you apply, calculate you average monthly payroll costs for the year.  Your lender may be able to help.  You will need to certify that the funds you receive will be used to support your business and its employees.  Have your basic business information (such as EIN, revenue, sales) ready to use for your applications.  The SBA provides a list of qualified lenders on its website.

Using this information, fill out the two-page Paycheck Protection Program loan application form that the Small Business Administration has provided for all borrowers and lenders. 

Submit the application to your qualified 7(a) lender.

Paycheck Protection Program loan proceeds can be used for:

  • Payroll costs, including benefits
  • Payment of interest on any mortgage obligation (principal payments are excluded) incurred before February 15, 2020
  • Rent, under lease agreements in force before February 15, 2020
  • Utilities, for which service began before February 15, 2020
  • Interest on any debt obligations incurred before February 15, 2020
  • Refinancing an Economic Injury Disaster Loan (EIDL made between January 31, 2020 and April 3, 2020)

At least 75% of the proceeds of a Paycheck Protection Program must be used for payroll costs.

The interest rate will be 100 basis points, or 1%.

The maturity is two years.

Yes. A borrower is eligible for loan forgiveness equal to the amount spent on the following items during the 8-week period as of the date of the loan:

  • Payroll costs (using the same definition of payroll costs used to determine loan eligibility)
  • Interest on the mortgage obligation incurred in the ordinary course of business
  • Rent
  • Utility payments

Only up to 25% of the forgiven amount can be for non-payroll expenses — as incurred and paid during the eight-week period beginning on the date of origination of the loan. The loan forgiveness amount can be up to the full principal amount of the loan and any accrued interest.  A borrower will need to document the proceeds used for payroll costs, and other permissible uses, to determine the amount of forgiveness.

The forgiven amount is non-taxable. The SBA is expected to issue additional guidance on loan forgiveness.

No. Borrowers may not receive more than one Paycheck Protection Program loan.  Accordingly, if applying for a Paycheck Protection Payment loan, consider applying for the maximum amount you believe you will need.

Yes.

You will not have to make any payments for six months following the date of disbursement of the loan.  However, interest will continue to accrue during this six-month deferment. 

In addition to the Paycheck Protection Program, businesses impacted by COVID-19 can access the SBA’s long-standing Economic Injury Disaster Loan (EIDL) Program. The maximum Economic Injury Disaster Loan is a $2 million working capital loan at a rate of 3.75% for businesses with up to a 30-year term. 

In addition, if you need a small infusion of cash immediately to help offset losses due to COVID-19, eligible applicants can receive a $10,000 emergency grant within three days of application.  There is no obligation to repay the grant.

To receive the $10,000 emergency grant, it is not necessary to have an approved Economic Injury Disaster Loan.  However, if you are able to secure a Paycheck Protection Program loan, the $10,000 Economic Injury Disaster Loan grant will be subtracted from the Paycheck Protection Program forgiveness amount.

Yes, but you must use the loan proceeds for different expenses.  For example, if you use the Paycheck Protection Program for salaries, you may not use the Economic Injury Disaster Loan for the same purpose.

No. Businesses that take advantage of loan forgiveness under the Paycheck Protection Program are excluded from receiving the payroll tax deferment provided by the stimulus packages. 

All Paycheck Protection Program loan applications must be received on or before June 30, 2020.

Disclaimer

Please keep in mind this information is changing rapidly and is based on our current understanding of the programs, and likely will change.  Although we will monitor and update our online resources as new information becomes available, please do not rely solely on this information for your financial decisions. Always refer to the SBA’s website.  You may also want to consult with your lawyers and financial advisors.

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