Covid-19 Stimulus Legislation & The Paycheck Protection Program
On March 27, 2020 the US Government passed the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act in response to the COVID-19 Pandemic. This act includes an emergency small business loans provision called the Paycheck Protection Program (“PPP”). The Small Business Administration (“SBA”) will allocate $349 Billion of 100% federally guaranteed loans to fund the PPP through existing SBA lenders.
Eligible lenders are listed on the SBA’s website.
- Any business qualifying as a “Small Business Concern” under the Small Business Act.
- Any businesses employing not greater than 500 employees (full-time, part-time, or other).
- Any business included within NAICS code 72 “Accommodation and Food Services” with not greater than 500 employees at each location (as opposed in total).
- Sole proprietors, independent contractors, gig economy workers, and self-employed individuals are eligible.
- Independently owned franchises who are approved by the SBA are eligible as affiliation rules have been loosened (assuming they meet the above criteria).
FUNDING AVAILABLE & PRINCIPAL FORGIVENESS
- Maximum per business is equal to 2.5x average monthly payroll expense (subject to certain limitations).
- OR $10 million, whichever is lowest.
Borrower is eligible for principal forgiveness for spending on the following items during the 8-week period following the loan origination:
- Payroll/benefits costs, including additional wages given to tipped employees
- Mortgage interest payments (excludes prepayments)
- Not more than 25% of forgiven principal shall be for non-payroll costs
- Reducing the number of employees.
- Reducing employee wages by greater than 25%.
- Principal forgiveness shall not be reduced if the business eliminates the reduction in employees or employee wages by June 30, 2020.
LOAN STRUCTURE & TIMELINES
- Interest is 1.0% fixed rate.
- Maximum term is 2 years.
- Principal and interest payments are deferred for 6 months post-origination, with interest accruing over this period.
- No collateral is required.
- No personal guarantee is required.
- Starting April 3, 2020, small businesses and sole proprietorships can apply.
- Starting April 10, 2020, independent contractors and self-employed individuals can apply.
- Application deadline is June 30, 2020.
- Other EIDL loans already received related to COVID-19 can be refinanced into the PPP for purposes of forgiveness.
These guidelines are published by the U.S. Chamber of Commerce. The guidelines are subject to change.