The U.S. Department of the Treasury has released information related to the Paycheck Protection Program (PPP) for small businesses. This Program consists of loans to small (and not so small) businesses to help cover expenses like payroll, rent, and utilities.
Background on the loans:
The loans provide businesses with funds to pay up to 8 weeks of payroll costs including benefits, interest on mortgages, rent, and utilities. These loans arepart of the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was passed by Congress on March 27.
The loans are administered by the U.S. Small Business Administration (SBA) but will be funded by banks that participate in the program. The SBA also has other programs setup to help small businesses during the COVID-19 pandemic and you can see these programs on their website here.
Where to start?
There is a lot of information floating around about the loans but the best place to start is the U.S. Department of of the Treasury website here. There website have an overview of the loan process with specific information for lenders and borrowers.
What does a Borrower need to know?
The loan amounts will be forgiven as long as
- 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 and
- the employer’s employee and compensation levels are maintained.
Under these loans, payroll costs that can be forgiven are capped at $100,000 on an annualized basis for each employee. In addition, to be forgiven the Treasury is saying that at least 75% of the loan proceeds must be spent on payroll costs to be eligible for forgiveness.
When can borrowers apply for the loans?
The program was just announced last week and the Treasury is reporting that the loan applications will start to be accepted on April 3, 2020. This start date applies to small businesses that apply through banks that are existing SBA lenders.
If you’re an independent contractor and self-employed individual you can start applying for these loans on April 10, 2020 through banks that are existing SBA lenders.
Which banks will be participating as lenders?
You can apply through any SBA lender or any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participation in the program. You should check with your banking institution to confirm they are participating and you can visit the SBA website for a list of SBA lenders.
Which businesses can apply for the Paycheck Protection Program loans?
According to the Treasury, all businesses with fewer than 500 employees can apply. This includes nonprofits, veterans associations, Tribal business concerns, sole proprietorships, self-employed individuals and independent contractors. There are additional businesses that are eligible if they have more than 500 employees if they are in certain industries and you can find this information here.
At this time, the banks are still developing their processes for accepting the loan applications. It is believed each bank will build out their own process, presumably an online portal that allows for digital signatures. Our firm’s bank is Chase and they are telling us we won’t have information until Friday, April 3, 2020. They aren’t sure how it’s going to work yet but they did provide us with a letter for their business clients. You can see a copy of the letter here.
What does the Paycheck Protection Program loan application look like?
The Treasury has created a loan application which can be found here. The application is streamlined and only consists of 2 pages, with a couple pages of instructions. Here is a picture of the top of the application:
Other Resources
The U.S. Senate has created a guide to the CARES Act that covers the PPP and other elements of the SBA programs. You can access this guide here.
The Treasury press release on March 31, 2020 has a good explanation of other aspects of the PPP and can help explain some of the issues in more detail. Additional information from the Treasury is here.
The US Chamber of Commerce has created a small business guide and checklist that covers the CARES Act and the Paycheck Protection Program. You can find this guide here.
An additional item of importance is that there are a number of different programs related to businesses that are impacted by COVID-19. Businesses that participate in the PPP are not eligible to claim an employee retention credit under the CARES Act. Before you decide to take a PPP loan you should evaluate both programs and select the one that best fits your business’s needs. You can review a comparison of the two programs here.
This post is to help you navigate the Paycheck Protection Program and is not to be tax or legal advice. You should contact your attorney, tax professional and accounting support before you enter into any of the programs to make sure you understand the best options for your business.