Paycheck Protection Program Guidelines.
CARES Act SBA Loan Qualifications
$350 billion allocated to help small businesses keep workers employed amid the pandemic and economic downturn.
Application Guidelines & Qualifications Paycheck Protection Program Summary (Updated April 7, 2020) The $2 Trillion CARES Act was signed into law on March 27th with $350 billion allocated to help small businesses keep workers employed amid the pandemic and economic downturn. The Paycheck Protection Program (PPP) is the mechanism to provide long-term capital to cover the cost of retaining employees. Please note that this document is a summary of certain relevant provisions of the CARES Act. The SBA may make additional modifications to the PPP loan parameters, subject to further clarification.
- The PPP provides for unsecured business loans intended to cover payroll and certain other costs including interest on pre-existing mortgages, rent under pre-existing leases and utilities.
- The program is co-managed by the Small Business Administration (SBA) and the Department of Treasury and the covered period is from February 15, 2020 through June 30, 2020.
- The loans will be made by existing SBA lenders (i.e. banks) and other institutions approved by the SBA.
- The PPP differs from the previously announced Disaster Assistance Loan Program which are loans made directly by the SBA and require personal guarantees and collateral.
- For perspective, please note that annual production of SBA 7A and 504 loan programs totals approximately $30 billion annually, so the $$350 billion PPP allocation is significantly higher than typical SBA volume.
- All business concerns that employ less than 500 employees.
- 501(c)3 non-profits that employ less than 500 employees.
- Restaurants and hotels with more than 500 employees but no more than 500 employees at any individual location.
- Up to $10 million but not to exceed 2.5X average monthly payroll costs during the one-year period before the date of the loan.
- Payroll costs under PPP generally consist of compensation, state and local payroll taxes (but not withholding), and benefits but excludes compensation of individuals whose annual compensation exceeds $100,000.
- No personal guarantees or collateral will be required and there will be no fees on the loan.
- Maximum interest rate is 4%, with further guidance pending.
- 10-year term but principal and interest payments will be deferred for first six months (or one year with lender approval).
- No prepayment penalty.
- The principal amount of the loan is subject to forgiveness and is not subject to federal income taxes.
- The forgiven amount will generally be equal to the sum of (payroll costs + mortgage interest + rent + utilities expenses) incurred or paid during the eight week period following the date of the loan – if the number of employees and amount of wages are not reduced during the eight week period.
- The remaining principal balance after loan forgiveness will be charged interest not to exceed 4% and will be repaid over a ten-year term.
- The amount eligible for forgiveness will be reduced proportionally if the average number of FTEs per month during the eight week period is less than the number average FTEs per month, at the borrower’s election, during the period February 15, 2019 through June 30, 2019 or during the period January 1, 2020 through February 29, 2020 or, if the borrower is a seasonal employer, during the period February 15, 2019 through June 30, 2019
- The amount eligible for forgiveness will also be reduced by the amount of any reduction in total wages of any employee during the eight week period that is in excess of 25% of the employee’s wages during the most recent full quarter (employees who were paid at an annualized rate in excess of $100,000 in 2019 are excluded from this calculation).
- There are exceptions for re-hired employees, subject to final rules to be established.
- To obtain forgiveness, the Borrower must apply and provide relevant supporting documentation.
- Payroll costs, except for employees making more than $100,000 per year and mandated sick leave under the Families First Coronavirus Response Act (FFCRA) (for which the tax credits under the new paid sick leave laws is the sole source of reimbursement).
- Group health care benefits during periods of paid sick, medical or family leave and insurance premiums.
- Mortgage interest for pre-existing mortgages (in place prior to February 15, 2020).
- Rent under pre-existing leases (in place prior to February 15, 2020).
- The Borrower does not need to establish creditworthiness and the ability to repay, but has to attest that the uncertainty related to the COVID-19 virus has made the loan request necessary to support the ongoing operations of the business.
- The Borrower is required to calculate an average monthly payroll over the last twelve months. This information needs to be carefully detailed, including payments for insurance and retirement benefits, among other items. The borrower will also need to separately identify compensation paid to individuals that exceeds $100,000.
- Borrower does not need to establish inability to secure credit elsewhere, which is a typical SBA requirement.
- Sample preliminary bank requests include the following. These may not be required by all banks but represent a preliminary list from discussions with bankers. o Payroll Tax reports (forms 941 for the past four quarters and 1099s) for the previous 12 months
- Historical tax returns for two years on business (2018 and 2019). If the 2019 tax return is not available, please provide a balance sheet and profit and loss statement dated 12/31/2019.
- Current financial statement (balance sheet and profit and loss statement).
- Organizational documents of the business.
- A list of all entities owned by any 20% or more owner of the business.
- Clear copies of driver’s licenses of all parties that own 20% or more of the business