On April 2, 2020, the U.S. Small Business Administration (SBA) issued an interim final rule regarding its implementation of the Paycheck Protection Program (PPP) contained in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) signed into law on March 27, 2020. The PPP makes available up to $349 billion in potentially forgivable loans to small businesses to assist those businesses in paying certain expenses, including payroll costs. On April 3, 2020, the SBA issued an additional interim final rule addressing the affiliation rules applicable to the PPP.
Small businesses, nonprofits, and sole proprietorships are currently able to apply for and receive loans through SBA qualified lenders. Independent contractors and self-employed individuals can begin to apply for and receive loans, beginning on April 10, 2020, through SBA qualified lenders.
The PPP program is open until June 30, 2020, or until funds made available for the program are exhausted. Due to the limited availability of funds, eligible businesses and individuals that desire to take advantage of the program should apply as quickly as possible. The interim final rule issued on April 2, 2020 describes the availability of the loans as “first-come, first-served.”
Eligible borrowers include the following, to the extent operating on February 15, 2020:
Generally, in determining the number of employees of an applicant, all employees of the applicant’s affiliates will be counted. Stock ownership, control rights, common management, and identity of interests are among the factors taken into account to determine whether persons are affiliates under applicable SBA rules. However, the SBA’s affiliation standards are waived for small businesses that:
The SBA has published a summary of the affiliation rules applicable to PPP loans, which is available here.
How to Apply:
Borrowers must apply for a PPP loan through an existing SBA lender or through any participating federally insured depository institution, federally insured credit union, Farm Credit System institution, or depository or non-depository financing provider approved by the SBA. Interested businesses and individuals should consult their existing lender or bank as to whether it is participating. Visit www.sba.gov for a list of qualified SBA lenders.
Applicants must complete the PPP loan application, which is available here on the SBA website, and submit the application with the required documentation to an approved lender that is available to process their application by June 30, 2020.
Applicants will need to provide lenders with:
Any Economic Injury Disaster Loan received by an applicant between January 31, 2020 and April 3, 2020 that was not used for payroll costs will not affect the applicant’s eligibility for a PPP loan. If an applicant received an SBA Economic Injury Disaster Loan between January 31, 2020 and April 3, 2020 that was used for payroll costs, the applicant’s PPP loan must be used to refinance the Economic Injury Disaster Loan.
An eligible borrower may not receive more than one PPP loan.
Certain Terms of the Loans:
Amount Available to Be Borrowed:
Applicants can borrow up to 2.5 times their average monthly defined payroll costs (which exclude compensation in excess of $100,000 on an annualized basis for each employee) for the applicable period (in most cases, the last year) plus the amount of any SBA Economic Injury Disaster Loan received after January 31, 2020 and refinanced under the PPP, subject to a $10 million cap.
Permitted Use of Proceeds:
Loan proceeds may be used to pay:
Loan proceeds may also be used to refinance an SBA Economic Injury Disaster Loan received between January 31, 2020 and April 3, 2020.
In any event, at least 75% of the PPP loan proceeds must be used to cover payroll costs.
Loan amounts may be forgiven to the extent that:
Borrowers can submit a request for forgiveness to the lender that is servicing the loan. The request must include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. Borrowers must certify that the documents are true and that the forgiveness amount was used to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days. The interim final rule issued on April 2, 2020 states that the SBA will issue additional guidance on loan forgiveness.
Borrowers must repay any amount not forgiven in accordance with the terms of the loan.
Reduction of Loan Forgiveness:
Loan forgiveness will be reduced if:
To avoid a potential reduction of the amount forgiven, borrowers have until June 30, 2020 to restore employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.
Required Certifications in the Application:
The application for a PPP loan requires the applicant, or the authorized representative submitting an application on behalf of the applicant, to certify to a number of statements, including the following: