SBA’s Paycheck Protection Program

On March 31, 2020, the Treasury Department and the Small Business Administration (“SBA”) released additional details on the Paycheck Protection Program, which is part of the CARES Act that was signed into law on March 27, 2020. Those details are available on the SBA’s website in addition to a helpful information sheet for borrowers released by the Treasury Department.

Below is a summary of the Paycheck Protection Program, as provided in these new materials.

When and How to Apply: Small businesses will be able to apply through SBA lenders beginning Friday, April 3. Independent contractors and self-employed individuals can apply starting one week later, on April 10. To apply, borrowers will need to fill out a short application form and submit the required documentation to an SBA lender, and any additional documentation required by the lender.

Who Can Apply: All businesses (including nonprofits, veterans organizations, tribal businesses, sole proprietorships, self-employed individuals, and independent contracts) with 500 or fewer employees are eligible. For businesses in the hotel and food service industries, the 500 employee limitation is calculated on a per-location basis. 

For now, the SBA’s affiliation rules when determining the number of employees within the “business” remain in effect for all businesses except small businesses that: 

  1. are in the hotel and food service industries;
  2. are franchises in the SBA’s franchise directory; or 
  3. receive financial assistance from SBA licensed small business investment companies.  

The Treasury Department notes, however, that additional guidance on this may be released in the future.

Interest: The interest rate on all loans will be 0.50%. All payments will be deferred for the first six months (although interest will accrue over this time).

Maturity: The maturity date on all loans will be two years; there are no fees or penalties for prepaying loans.

Loan Amount: The amount of any loan can be up to the lesser of (1) two months of the business’ average monthly “payroll costs” (as defined in the CARES Act) from the last year plus an additional 25% of that amount and (2) $10 million.  

Use of Proceeds: Loans should be used for:

  1. payroll costs (including benefits);
  2. interest on mortgage obligations incurred before February 15, 2020;
  3. rent obligations on leases in force before February 15, 2020; and
  4. utility payments, for which service began before February 15, 2020.

Loan Forgiveness: A recipient is eligible for forgiveness of the loan amount equal to the amount of payroll, mortgage interest, rent, and utilities paid over a period of eight weeks from when the loan is made. However, the Treasury Department indicates that at least 75% of the forgiven amount shall be for payroll costs (and no more than 25% available for mortgage interest, rent, or utilities).

The eligible forgiveness amount is subject to reduction if the number of employees is reduced, or wages for employees who are paid under $100,000 annually are reduced by more than 25%. For businesses that have already reduced headcount, they can re-hire those employees before June 30, 2020, and not have the prior reduction count against them for forgiveness purposes.

On April 28, Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza released a joint statement that all PPP loans in excess of $2M, in addition to other loans as appropriate, will be reviewed by the SBA following the lender’s submission of the Borrower’s loan forgiveness application. Learn more in our blog, "Guidance on PPP Loan Eligibility."

For more information about the CARES Act or the Paycheck Protection Program, please contact John Kellogg