March 2020 Foodman website and JD Supra

The enactment of the Coronavirus Aid, Relief, and Economic Security (CARES) Act includes the Paycheck Protection Program (PPP).  The PPP authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. 

The Small Business Administration (SBA) has the authority to provide 100% federally backed loans through December 31, 2020 to help eligible businesses pay operational costs such as payroll, rent, and utilities through the PPP.  Portions of the loans are forgivable if a business satisfies certain conditions.

If the proceeds of a PPP loan are used for fraudulent purposes, the U.S. government will pursue criminal charges against the borrower.

Purpose of the Loans should be for:

• Payroll costs, including benefits
• Interest on mortgage obligations, incurred before February 15, 2020
• Rent, under lease agreements in force before February 15, 2020
• Utilities, for which service began before February 15, 2020

The loan amounts will be forgivable if:

• The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8-week period after the loan is made
• Employee and compensation levels are maintained

Definition of payroll costs

• Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee)
• Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit
• State and local taxes assessed on compensation
• For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee

Where to apply?

Application is done through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. Visit www.sba.gov  for a list of SBA lenders.

Who can apply?

All businesses, including nonprofits, veterans’ organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors (with 500 or fewer employees) can apply.

When can the application be made?

• Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders
• Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders
• Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program

Loan Forgiveness

• Borrowers will owe money when the loan is due if the loan amount is used for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan.
• Borrowers will also owe money if they do not maintain their staff and payroll.
• Loan forgiveness will be reduced if the Borrower decreases its full-time employee headcount.
• Loan forgiveness will be reduced if the Borrower decreases salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
• Borrowers have until June 30, 2020 to restore their full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

Requesting Loan Forgiveness

• Borrower will submit a request to the lender that is servicing the loan.
• The Borrower’s request will include documents that verify the number of full-time equivalent employees and pay rates, payments on eligible mortgage, lease, and utility obligations.
• Certification from the Borrower that the documents are true, and that the Borrower used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments.
• The lender must decide on the forgiveness within 60 days.

Other Details:

• Payroll costs are capped at $100,000 on an annualized basis for each employee
• Loan payments will be deferred for six months (interest will continue to accrue over this period)
• Interest rate is set at a 1% fixed rate
• Loans are due in 2 years
• No collateral or personal guarantees are required
• Loans can be for up to two months of the entity’s average monthly payroll costs from the last year plus an additional 25% of that amount. That amount is subject to a $10 million cap
• There are no loan prepayment penalties or fees
• It is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs due to the high expected subscription for the PPP.

Potential Borrowers ought to consult their Tax Specialist

Borrowers under the PPP must make “good faith” certifications that:

• Current economic uncertainty makes the loan necessary to support their ongoing operations.
• The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.
• They have not and will not receive another loan under this program.
• They will provide to the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting the loan.
• All the information provided in their application and in all supporting documents and forms is true and accurate.

Knowingly making a false statement to get a loan under the PPP is punishable by law.