COVID-19 SBA Paycheck Protection Program (PPP) LOAN PROGRAM - CARES ACT
Posted Tuesday, March 31, 2020 by Kim Sandher
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted, in response to the COVID-19 pandemic on March 27, 2020.
The CARES Act expands eligibility criteria for available loans through the Small Business Administration (SBA) by adding the Paycheck Protection Program, which provides federally guaranteed loans up to a maximum amount of $10 million to eligible businesses, which can be partially forgivable, to encourage businesses to retain employees through the COVID-19 crisis by assisting in the payment of certain operational costs.
February 15, 2020 - June 30, 2020
Any "small business concern", nonprofit organization, veterans organization, or tribal business if they employ not more than (i) 500 employees or (ii) the size standard in number of employees established by SBA for that industry (if applicable).
Loan proceeds may only be used for the following expenses (subject to certain exclusions):
group health care benefit related costs during paid sick, medical, or family leave, and insurance premiums
employee salaries, commissions, or similar compensations
mortgage interest payments (not prepayment of nor principal on a mortgage)
interest on any other debt obligations that were incurred before the covered period
Maximum Loan Amount
Lesser of $10 million or a payroll formula that essentially equals 2.5 times the average total monthly payroll cost incurred in the one year period before the loan is made
0.50% fixed rate
2 years. May be paid off sooner without penalty
SBA will direct lenders to defer payments (principal, interest, and fees) for a minimum of 6 months and maximum of 12 months
Collateral or Personal Guarantee Requirement
During the 8 week period beginning on date loan is funded, the borrower will be eligible for forgiveness and cancellation for up to the full principal amount of the loan.
The amount eligible for forgiveness is the total costs incurred and payments made during the 8 weeks for payroll, mortgage interest, rent, and utilities. This amount is subject to reduction if the borrower terminates employees or reduces salary and wages during the 8 weeks, but the borrower is subject to relief if borrower rehires employees or makes up for wage reductions by June 30, 2020.
The SBA will not charge any fees but lenders may be entitled to charge processing fees not to exceed:
5% for original principal balance of $350,000 or less
3% for original principal balance of greater than $350,000 but less than $2 million
1% for original principal balance of $2 million and above
When to Apply
April 3, 2020 - small businesses and sole proprietorships can apply
April 10,2020 - independent contractors and self-employed individuals can apply
How to Apply
Check with your local lender about whether it is participating in the program.
More information is available here: SBA Borrower Information Sheet
As things are changing rapidly the interpretations described here may change. If you have questions, please contact Kim Sandher at (206) 805-1490 or KSandher@PivotalLawGroup.com.